Corning: Diversified And Discounted Value In An Expensive Market

Aug. 9.13 | About: Corning Inc. (GLW)

With the recent surge in stock prices, investors have had to turn to unlikely places to find value. When I look at a company, no matter how good the pitch is, I hate putting my money into stocks that have triple digit P/E ratios. Corning Inc (NYSE:GLW) offers investors a solid mix of value, diversity and growth at a sharply discounted price point; Corning offers an opportunity beaten by few others on the market.

The Financials

Corning's main selling point to me is simple, the company has a fortress balance sheet and solid financials at a low premium. With a price to book ratio of ~1.03 (~$14.75/s book value), the company is very undervalued. The book is made up of a solid mix of assets, with ~$3.75/s in cash and equivalents on hand. This is a very telling statistic, as it implies a degree of liquidity and a security cushion. There are few other companies trade at this price to cash multiple, and most are losing money fast. Corning has seen EPS drop over the last several years, however the company's earnings have hit a trough and bottomed out, providing a solid cash flow stream over the last few years and potential for growth in the coming quarters. While the company gives out a healthy ~2% dividend, the payout ratio is very low at about 23%. This implies a high ceiling for dividend growth, and the company has done exactly that, increasing it's dividend and buying back shares at a sharp rate over the last few years. Corning's financial metrics are very healthy, and they have been too heavily discounted at the current share price.

Diversification

Corning is different from many of the more popular tech and smartphone companies out there in that the company offers investors a solid degree of diversity. Indeed, Gorilla Glass is the company's flagship product, but the company is by no means a one trick pony. Gorilla Glass offers investors diversity in a hypersensitive smartphone market; while other companies numbers are at the whim of the consumer, Corning's are at the whim of the overall market. One need only look at the following list of devices that use Gorilla Glass for a snapshot of the company's diverse set of relationships. In addition, the company offers diversity outside of the smartphone market, where it derives almost two-thirds of it's income, with high growth in the life sciences segment as well as the telecom segment. The company is also making a push for future growth in the fiber optics field. The following is from the company's website:

"Our near-term growth will be fueled by three distinctly different market opportunities that showcase the depth of our materials expertise: LCD displays for communications and entertainment; emissions-control technology for light-, medium- and heavy-duty diesel vehicles; and optical fiber, cable, hardware and equipment for fiber-to-the-premises applications.

Corning is known for its unyielding commitment to research and development, its materials and process expertise and its tradition for life changing inventions. The company has been characterized as adaptive and flexible, and will continue to anticipate and drive major market opportunities...

According to our 2012 Annual Report, 36% of Corning's 2012 revenues came from our display technologies segment, 27% from our telecommunications segment, 12% from our environmental technologies segment, 17% from our specialty materials segment and 8% from our life sciences segment. Other products represented less than 1% of Corning sales."

Corning is a simple case of a company that has fallen by the wayside because of initial drops in EPS. This is a stock that screams value, and it is still an exceptionally profitable company that offers a solid yield with room for growth, trading at an insignificant discount to book value. The company offers investors all of the above and a piece of the upside in the smartphone market, however the diversified product offering limits the pain in the downside. Long term investors will be wise to pick up shares while the prices are cheap.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GLW over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.