2 Undervalued Tech Equipment Makers to Consider

Includes: GLW, ITRI
by: Bret Jensen
Corning Inc. (NYSE:GLW) - Corning Incorporated manufactures and processes specialty glass and ceramics products worldwide. It operates in five segments: Display Technologies, Telecommunications, Environmental Technologies, Specialty Materials, and Life Sciences. The Display Technologies segment manufactures glass substrates for active matrix liquid crystal displays (LCDs) that are used primarily in notebook computers, flat panel desktop monitors, and LCD televisions.
The Telecommunications segment produces optical fiber and cable, and hardware and equipment products, such as cable assemblies, fiber optic hardware, fiber optic connectors, optical components and couplers, closures and pedestals, splice and test equipment, and other accessories for optical connectivity to the telecommunications industry. This segment also offers optical fiber technology products for various applications, such as premises, fiber-to-the-premises access, metropolitan, long-haul, and submarine networks.
The Environmental Technologies segment offers ceramic technologies for emissions and pollution control in mobile and stationary applications, including automotive and diesel substrate, and filter products. The Specialty Materials segment manufactures products that provide approximately 150 material formulations for glass, glass ceramics, and fluoride crystals used in commercial and industrial markets. The Life Sciences segment provides general labware and equipment, as well as tools for cell culture and bioprocess, genomics and proteomics, and high-throughput screening.
Valuation and price target – GLW sells for less than 10 times this year’s earnings and under 9 times 2012’s consensus. Corning is one of the cheapest tech companies around, especially considering it has almost $3 billion in net cash on the books. In 2006 and 2007 before the global recession it routinely sold in a 15 to 25 P/E range. It sells for 9 times operating cash flow and a projected PEG of .83. It is at near the bottom of its five year valuation range based on P/E, P/B, and P/CF. It has grown earnings on average of over 14% during the previous five years and pays a small dividend of 1%. Its revenues are projected to increase double digits for both 2011 and 2012. It provided key components to enable flat screen devices, fiber optics, solar and various other specialty items. It literally provides the “picks and shovels” for fast growing areas such as ceramics, smart glass, and the specialty glass that goes into tablet computers. Its Gorilla glass product for wireless products is growing strongly.
GLW is priced at $19.50 a share. Price targets are $25 at S&P as well as Goldman Sachs (NYSE:GS). It is held by SAC Capital Advisors, Hillman Capital Management and Maverick Capital as well as other large hedge funds.
Itron Inc. (NASDAQ:ITRI) - Itron, Inc. provides products and services for the energy and water markets worldwide. It produces electricity, gas, water, and heat meters; and various other associated metering products for residential, commercial and industrial (C&I), and transmission and distribution customers.
The company offers electronic and smart electricity meters; gas and water meters; electricity, gas, and water automated meter reading (AMR) and advanced metering infrastructure (AMI)/smart meter modules; handheld, mobile, and network AMR data collection technologies; AMI network technologies; electromechanical, electronic, and smart electricity meters; mechanical and ultrasonic water and heat meters; diaphragm, turbine, and rotary gas meters; one-way and two-way electricity prepayment systems, including smart key, keypad, and smart card; and two-way gas prepayment systems using smart card. It also provides meter data management software and knowledge application solutions that provide utilities and C&I end-users with support for data collection, complex data applications, data warehouses, and analytic and visualization tools.
Valuation and Price Targets – Itron sells at approximately 12.5 times this years and 2012’s projected earnings. ITRI sells at the very bottom of its five year valuation range based on P/E, P/B, P/CF and P/S. During the current quarter, institutional investors have been net buyers of 5.6M shares, which represents about 13.91% of the company's float of 40.25M shares. It successfully booked a 268m contract with BC Hydro during the last quarter which contributed to its growth in backlog.
Utilities need to deploy technology to boost efficiencies is long term secular trend. ITRI has averaged over 30% growth over the last nine years. Its consensus estimates for 2011 and 2012 EPS has crept up over the last ninety days. Revenue is split almost 50/50 between North American and International. Its book to bill ratio was 1.21 at last earnings reports which is conducive to growth. It is held by Pioneer Investment Management and Maverick Capital. Itron is priced at around $53 a share. Price targets are $73 at S&P and $75 at Credit Suisse (NYSE:CS).

Disclosure: I am long GLW.