Corning (GLW) has done pretty well the last 10 weeks as it has continued to move up with a very strong pattern. But Corning's products are heavily tied to consumer spending so I am interested in seeing how the company is going to do the next couple quarters as it appears our economic growth is slowing down somewhat. Let's explore how this company has done as of late and how investors should consider watching the economy as they consider investing in Corning.
So Corning is now showcasing its "ultrathin" flexible glass. The company calls it "Willow glass" because it bends; like plastic it's bendable and supple. But it is glass and this could mean something new for electronics. Let your imagination fly! It could mean lighter electronics; it could mean any shape that engineers could design or imagine; curved displays; or a tablet you roll up and stick in your pocket or pocketbook. How about a wearable computer device!
So what happens now? Nothing for a few years since it will take about three years before this "Willow glass" as it is known becomes a fundamental piece of consumer electronics, according to forecasters. People are not accustomed to glass that rolls up but consumers are also looking for organic style designs that are different, especially newer generations that are looking for something that they can identify with. So I don't think it will be too long before consumers may embrace this technology and it becomes a regular staple in our electronics.
When is Corning a Good Investment?
Corning's exposure to the display market could be a good thing if and when our markets turn around because it will be a great boon to the TV industry, which has been struggling. Its LCD glass business, when adding in all the JV shows, brings in about 35% of the company's revenue and a nice piece of its net income. But for us to see a significant turnaround in this arena, global markets will have to do much better. While the LCD market grew by 2.2% last year its telecommunications segment also grew about 3.3%. Even the demand for Gorilla Glass is growing (Corning's third-largest segment of its business) as it saw a revenue increase of over 50% from quarter to quarter - last quarter. This growth is positive, but it barely mirrors the market as a whole. In order for Corning to have significant steady growth, I believe we have to see strong economic growth because its products are consumer driven.
The Company Looks Respectable as an Investment
For the longest time, buying larger televisions continued to decline in the United States because the economy was so lax. As the market slowly increases consumers are interested in moving to larger screens and higher LED models and this bodes well for Corning, but growth is only expected to be in the low single digits reflecting the snail-like pace of our growth.
Corning also has a nice conservative forward P/E of 10, which is below market standards, and which make the company look like a good buy right now. Is it really a good buy though? It does have the highest EBITDA margin but profitability and growth rate is not that stellar. I think it all goes back to the economy. Assuming the TV market will continue to grow at healthy levels as the market grows so will the purchase of tablets and smartphones, which all use displays. Corning will obviously profit from this, but it is tied to the markets.
The company does look very healthy for the challenges it has faced in the economy. Even though the company showed a decline in EPS, it is managing itself very well with a low debt-to-equity ratio of 0.16 and this is below the industry average and implies that the company is very good at managing this debt level. Net cash flow increased last quarter by 7.17%, which is pretty good but it's not a lot and its margins are still less than the industry average so there is a need to keep things in perspective - both good and bad. Bottom line, its net profit margin of 13.18% is very favorable compared with the industry average so I would say the company is in a good position when we look at its competitors on average.
The stock has done well, reflecting the market. Even though it partially filled the gap in November when it shot up after earnings announcements, it continued to move up from early February just like the rest of the market. It barely touched the middle Bollinger band until recently so the move has been quite good. Both the RSI indicator and the MACD indicator look strong and bullish with no signs that the stock is ready to turn down yet.