Corning: Still a Great Value Despite Recent Run

Corning (NYSE: GLW) ($23.67) is a 150-year-old company that is involved in some of today's most exciting cutting-edge technologies.

In the 1870s, the company developed the glass used in Thomas Edison's first light bulb. Around the time of World War I, it engineered "PYREX" -- a highly durable brand of heat-resistant cookware. And in later years, it was instrumental in advancements like the television cathode ray tube [CRT] and even designed the surface of the Hubbell telescope.

Today, Corning is best known for the glass substrates used to make liquid crystal displays [LCD]. In fact, the company dominates 50% of the global market for the thin glass panels used in computer monitors and televisions. While this division represents almost half of the firm's revenues, Corning does have a stake in a number of other fast-growing fields as well.

In fact, the company is actively involved in four broad lines of business that encompass areas such as fiber optics, diesel engine pollution control, and scientific laboratory instruments. And through its 50% ownership stake in Dow Corning, the firm boasts more than 7,000 silicone-based products that run the gamut from fuel additives to solar power cells. In short, Corning's products have hundreds of applications and are used in everything from astronomy to aerospace defense.

Though the company struggled mightily after the tech bubble popped several years ago, it has since mounted a powerful comeback and strengthened its balance sheet. In fact, Corning now sports $1.7 billion in cash (net of debt) on the books. And while its business is somewhat capital intensive, the company still generated in excess of $600 million in free cash flow last year.

As a result, management has had the confidence to reinstate its quarterly dividend payments (which were discontinued in 2001) and is also diligently buying back shares. And looking ahead, we see further good news on the horizon.

Thanks in part to the proliferation of high-definition [HD] televisions, management is forecasting volume growth of up to +40% in the global LCD market this year. Furthermore, stricter government emission standards should help fuel widespread adoption of the firm's diesel engine products.

And on the telecom front, Corning's bendable fiber (which can be bent around corners with no signal loss) is expected to be a "game changing" breakthrough -- opening up high-speed voice, Internet, and HDTV to millions of residences around the world. Already, key service providers like Verizon (NYSE: VZ) have expressed interest.

Despite rallying +25% so far this year, GLW is still trading at a reasonable price-to-earnings-to-growth [PEG] ratio of about 1.0. And based on our fair value calculation of $32, the stock has the potential to gain about +35%. Given the explosive growth expected in some of its core markets, it wouldn't surprise us to see the shares march even higher.

Disclosure: none

Comments

[MNRTrading]

Your assessment of GLW is reasonable, but there are more things taking place at Corning. They have a network of partnerships which suggest a larger move into markets that leverage their Intellectual Property (think medical, ceramics, and solar).

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