Corning: Illusory EPS And 'Leaky Equity Bucket' - Avoid

Summary

• Corning's reported non-GAAP earnings exclude a large amount of unusual items, which nevertheless involve real monetary outlays.
• Over the last 3.75 years, dividends paid out of equity exceed the amount of income flowing into equity, if both "core" and unusual items of expense are taken into account.
• Share repurchases and a portion of dividends have been funded by significant increases in net debt.

Investment Review: Corning Incorporated

Corning Incorporated (NYSE:GLW) offers poor prospects for share price growth. Increases in indebtedness to fund share repurchases has been ineffective for growing EPS, and has weakened the balance sheet. The headline "Core" earnings and EPS are illusory from a point of view of income available to pay dividends and fund share repurchases. Corning may benefit from increased revenue for some of its businesses supplying products related to the ongoing COVID-19 pandemic. This is considered unlikely to bridge the gap between the realistically calculated net income, available for distribution to shareholders, and the dividend payment. Increased borrowings are likely to be continued to be required for partial funding of the dividend. I set out below the detailed case in support of these opinions.

Looking for share market mispricing of stocks

What I'm primarily looking for here are instances of share market mispricing of stocks due to distortions to many of the usual statistics used for screening stocks for buy/hold/sell decisions. The usual metrics do not work when the "E" in P/E is distorted by the impact of COVID-19. And, if the P/E ratio is suspect, so too then is the PEG ratio similarly affected. I believe the answer is to start with data at the end of 2019, early 2020, pre COVID-19 and compare to projections out to end of 2022, when hopefully the impacts of COVID-19 will have largely dissipated. Summarized in Tables 1, 2, and 3 below are the results of compiling and analyzing the data on this basis.

Table 1 Detailed Financial History And Projections

Table 1 documents historical data from 2016 to 2019, including share prices, P/E ratios, EPS and DPS, and EPS and DPS growth rates. The table also includes estimates out to 2022 for share prices, P/E ratios, EPS and DPS and EPS and DPS growth rates (note estimates

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. I do not recommend that anyone act upon any investment information without first consulting an investment advisor and/or a tax advisor as to the suitability of such investments for their specific situation. Neither information nor any opinion expressed in this article constitutes a solicitation, an offer, or a recommendation to buy, sell, or dispose of any investment, or to provide any investment advice or service. An opinion in this article can change at any time without notice.