Seeking Alpha
Profile| Send Message| ()  

Corning Incorporated (GLW) is a global, technology-based corporation, operating in five segments: Display Technologies, Telecommunications, Environmental Technologies, Specialty Materials and Life Sciences. In 2011, Corning launched Corning Lotus Glass, an environmentally friendly, display glass developed to enable technologies, including organic light-emitting diode, OLED, displays and next generation liquid crystal displays, LCD. In 2013, Corning revealed Corning Gorilla Glass 3 for the International Consumer Electronics Show, CES, in Last Vegas. Gorilla Glass 2 is great, but Gorilla Glass 3 is even more remarkable and also tougher. In this article, recent developments will be updated for Corning and current options strategy will be reviewed.

Recent Developments

Q4, 2012 earnings: GLW reported Q4, 2012 revenue of $2.15B, which was up 5.3% sequentially and 13.7% year over year. The earnings also beat the Zacks Consensus Estimate by 2 cents. Below is the breakdown of revenue by segments.

% of revenue

Sequentially

Year Over Year

Display Technology

37%

+4.8%

+2.6%

Telecommunications

25%

+3.3%

+10.2%

Specialty Materials

19%

+9.9%

+67.5%

Environmental Technologies

10%

-6.0%

-6.4%

Life Sciences

9%

+19.4%

+29.4%

The pro forma gross margin was 42.3%, down 87 bps from 43.1% in Q3, 2012 and down 151 bps from last year, mainly due to decline in LCD glass. Including special items, the GAAP net income was $282M ($0.19 per share), compared to $521M ($0.35 per share) in the previous quarter and $491M ($0.31 per share) in the year-ago quarter. $1.2B cash was generated from operations, of which $526M was spent on capex, $411M on acquisitions, $140M on share repurchases, and $133M on dividends.

Guidance: Corning expects the gross margin to shrink two percentage points, driven by lower volume. SG&A and R&D will be consistent as percentage of sales on a sequential basis. Specialty Materials are expected to decline 30% sequentially due to seasonality-driven inventory adjustments in the channel.

Key Growth Opportunities, Highlighting Glass Solutions

Gorilla Glass: According to Wendell P. Weeks, the Chairman, CEO, and President of Corning, stated "Today, Gorilla Glass is featured on 1 billion devices worldwide. It is Corning`s second-most-profitable business and the fastest-growing product in Corning`s history. Our Gorilla Glass business has the potential to more than double in sales over the next several years." There are three major trends driving this opportunity: 1) Smartphone volume growth expected to double and tablet computers to triple by 2016; 2) Large screen sizes for electronic devices using more cover glass; 3) Touch technology moving to notebook computers, creating an entirely new opportunity.

Lotus Glass: Corning Lotus Glass is designed to offer superior performance for higher-resolution LCDs as well as OLEDs. The company remains optimistic about the OLED market, as all manufacturers making or developing OLED devices are relying on designs with two pieces of glass.

Willow Glass: Corning Willow Glass is Corning's newest advanced glass solution, which could be key that unlocks a host of next-generation displays. Willow Glass could be used in Apple Inc. (AAPL)'s rumored smartwatch due to its flexibility. Willow Glass could potentially open the door to an iOS-connected timepiece that wraps its display fully around the wrist. According to the report from Slash Gear, Willow Glass has been in development for over 10 years and the material can just be 100 micron thick. Willow Glass is not only flexible, but also can be processed at very high temperature, up to 500 degree centigrade, which makes it suitable for roll-to-roll production. As reported,

"Such systems, where assembly of display components is carried out continuously rather than in individual sheets, would likely be essential for productivity if Apple was to go into mass production for what would likely be an affordable and popular accessory."

Key Stats and Valuation

GLW has an enterprise value of $15.60B with a market cap of $18.29B. GLW has a total cash of $6.14B with a total debt of $3.46B. GLW generates an operating cash flow of $3.21B with a levered free cash flow of -732.88M. By using Morningstar's data, GLW's key stats will be compared to its peers in the industry of electronic components. GLW has higher revenue growth (3 year average) of 9.9, as compared to the industry average of 5.3. GLW has lower operating margin of 16.3%, ttm, comparing to the average of 17.8. GLW has higher net margin of 25.0%, ttm, as compared to the average of 11.5%, ttm. GLW's ROE of 8.9 is lower than the industry average of 13.1. GLW's P/E of 9.8 is lower than the industry average of 16.8 but higher than GLW's 5 year average of 8.8. GLW's P/E of 9.0 is lower than S&P 500's average of 14.0.

Technical Analysis

GLW is trading at $12.49 at the time of writing. GLW had been trading in the range of $10.62-$14.58 in the past 52 weeks. GLS has a beta of 1.44. The MACD (12, 26, 9) is showing a bullish trend with diverging MACD difference. The momentum indicator, RSI (14), is picking up and indicating a bullish lean at 56.42. GLW is currently trading above its 50-day MA of $12.44 and 200-day MA of $12.37. The next resistance is $12.71, the R1 pivot point, followed by $13.42, the R2 pivot point, as seen from the chart below.


(Click to enlarge)

Source: StockCharts.com

Reviewing Options

The last reviewed credit put spread of May 18, 2013 $10/$11 put is currently yielding 7.2% return on margin. Investors can wait until options expiration to gain full maximum profit of 20.48% return on margin if GLW closes above $11 on May 18, 2013. For more aggressive investors, a credit put spread of May 18, 2013 $11/$12 can also be reviewed.

Note: All prices are quoted at the time of writing on February 12, 2013 and all calculations are before fees and expenses. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.

Source: Corning: Buy For Tough Gorilla 3 And Flexible Willow Glass