Corning: Revving Up Its Automotive Glass Offerings (To Drive Shares Higher)

|
About: Corning Inc. (GLW)
by: Willow Street Investments
Summary

The company continues its transformation towards balancing revenue/earnings across all of its divisions more evenly and lessening dependence on its price sensitive LCD glass business.

The company accomplishes its transformation in two primary ways: new product offerings and acquisitions. Its push into the automotive glass market is its next big offering.

The company recently announced its glass-enabled concept vehicle showcasing the variety of uses for its Gorilla Glass product for multiple automotive applications.

The company sees trends in connectivity, fuel efficiency, and social behavior as creating opportunities for advanced glass technologies, both inside and outside vehicles.

Each of the company’s Gorilla Glass automotive market offerings reflects its desire to extend Gorilla Glass into the automotive glass market. Investors take notice.

Our primary theme for Corning's (NYSE:GLW) shares as an investment has been a theme of transformation towards balancing revenue/earnings across all of its divisions more evenly and lessening dependence on the company's price sensitive LCD glass business. This transformation is being accomplished in two ways. One way is the company's ongoing acquisitions to fold into its non-display glass divisions. (We wrote about GLW's most recent acquisition here.) The other way of lessening the company's dependence on its price sensitive LCD glass business is the expansion of new product offerings across its non-display glass divisions. Recently, GLW announced new product offerings relating to its Gorilla Glass product that will continue to drive their transformation for two reasons. First, the company's announced automotive-related Gorilla Glass products have the potential to tap into a large market that extends Gorilla Glass beyond the price-sensitive electronic device cover glass market into new revenue sources for the product. In addition, such new automotive-related Gorilla Glass products continue the revenue diversification process that lessens GLW's dependence on its price sensitive LCD glass business.

GLW announced during the Consumer Electronics Show ("CES") in early January 2017 its glass-enabled concept vehicle showcasing the variety of uses for its Gorilla Glass product for multiple automotive applications. As the company noted, rapid automotive industry changes have been driven by new trends in connectivity, fuel efficiency, and social behavior. The company sees such changes as creating new opportunities for the role of advanced glass technologies, both inside and outside vehicles. In particular, GLW noted that its adaptation of its Gorilla Glass product to the automotive industry allows it to deliver lighter, tougher, and more optically advantaged solutions, enabling improved fuel efficiency, and a safer, more enhanced user experience for both drivers and passengers. Further, the company noted that its leading position in mobile device cover glass has provided it an important starting point for glass solutions enabling smart-phone like connectivity in cars. GLW showed off the role its Gorilla Glass can play in automobiles at CES with its "Connected Car." We see the company's introduction of its "Connected Car" as the genesis of its strong push into the automotive market that many investors do not fully appreciate yet.

GLW's Connected Car includes a lightweight Gorilla Glass hybrid windshield with augmented reality capabilities, providing real-time updates on traffic and landmarks, and enabling a lighter, more fuel-efficient ride. Such car also includes a Gorilla Glass dashboard and floating center console, providing users with fully integrated connectivity that keeps drivers and passengers informed and entertained. The car further shows off a Gorilla Glass hybrid sunroof and backlights, with additional lightweighting benefits, contributing to improved fuel efficiency. Each of these Gorilla Glass offerings for the automotive market reflects the company's desire to leverage its precision glass capabilities, fusion manufacturing expertise, and auto industry experience to extend Gorilla Glass into the automotive glass market. As we have noted in our ongoing GLW articles, the company is transforming before our eyes through continued acquisitions, aggressively offering new products and a substantial Capital Allocation plan consisting of substantial share buyback activity. We believe that investors should fully appreciate all of GLW's transformative activities as likely drivers of stronger share price appreciation in the intermediate and long term.

Over the near to intermediate term, GLW is likely to continue its strategy of aggressive acquisitions and new product offerings until the company can drive more consistent revenue/earnings growth. With this in mind, we believe that investors should consider purchasing GLW's shares on any weakness in the company's shares to fully benefit from the company's transformative new automotive product offerings and acquisitions. GLW's ongoing transformative new automotive product offerings and acquisitions are not the only reasons that the company's shares are likely to rise higher sooner rather than later. The remaining aspect of the company's plan to drive its shares higher is its Strategy and Capital Allocation Framework. In our recent article, we pointed out that GLW's significant share repurchases have reduced its outstanding share count from 1.5 billion shares outstanding several years ago to about 950 million in late 2016. We noted further that GLW announced a share buyback in December 2016 of $4 billion. All of these company actions are a positive for GLW shareholders.

While GLW's shares trading near 52-week highs, we continue to believe that potential investors may still take part in the shareholder rewards that will result from the company's transformative actions. While we believe the company will continue share buybacks in the intermediate and long term, the most significant GLW buyback activity is likely complete. As noted above, GLW is now more likely to strive for more consistent growth with new product offerings targeting growth markets where its innovative glass capabilities will thrive and with additional bolt-on acquisitions and other structural changes. (We have pointed out in our articles that the company had become more involved in transformative actions in recent years.) GLW also continues to engage in research and development to offer an increasing number of innovative products. Investors should consider the company's shares on any modest pullback.

Our view

Multiple use opportunities for GLW's Gorilla Glass product in the automotive market are likely to be the next growth driver for the company in the near to intermediate term. We believe that investors do not fully appreciate nor does GLW's share price fully reflect the company's ability to drive future growth from this significantly large market. The company's initial concerted steps into the large automotive market opportunity is reason enough to buy the company's shares now. There are other reasons though. As we have noted in prior articles, after the company completes its latest share repurchase program, GLW's outstanding share count will have been reduced by about 50 percent in recent years. We believe that such significantly reduced share count will magnify the positive results of GLW's new product offerings and acquisitions. Further, with respect to the technologies the company will focus on, GLW will remain largely focused on technology markets where it is a leader and that will provide it with significant growth/returns for investors. Therefore, the components of GLW's transformation activities include internal research and development, capital spending, product innovation, acquisitions and divestitures.

GLW's forward price-to-earnings ratio is about 16.45 based on 2016 earnings estimates of $1.49 and 14.85 based on 2017 earnings estimates of $1.65. We should note that such estimates have risen slightly in recent months. We believe that long-term focused investors should consider purchasing GLW shares on any overall market selloff before such shares break out to the upside. Long term, GLW's innovative research and development abilities, aggressive acquisition strategy, capital-allocation plan and potential use of repatriated overseas cash will reward investors with dividend increases, share buybacks and share price appreciation. Finally, the wild card that will also likely benefit shareholders is GLW's likely shareholder friendly use of the President Trump induced repatriated overseas cash at an advantageous tax rate.

(Click "follow" next to our contributor name at the top of this article to follow our upcoming articles on GLW and more.)

Disclosure: I am/we are long GLW. 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.