Corning Inc.: The Market Is Still Missing The Big Picture

Summary

• Corning stock is up 32% since my last report, but the stock has failed to produce expected alpha returns.
• The macroeconomic outlook for Corning is improving, and there are identifiable catalysts that could help the company grow its earnings.
• Corning seems to be modestly undervalued and remains a good pick for value investors despite the recent run-up in the stock price.

When I published my first article on Corning Incorporated (NYSE:GLW) in September of 2019, I thought the company was misunderstood by the market, and that there was modest upside potential. Since then, the stock has gained 32%, in comparison to the 31% gain of the S&P 500, so my call has failed to generate any meaningful alpha, although it has provided adequate returns for bearing the risks. In early-2020, many of the end markets served by Corning came under pressure, painting a bleak outlook for the company. Things, however, turned for the better in the second half of last year, and Corning reported YoY revenue growth from each of its 5 business segments in Q4 2020. The new year is promising to be even better for the company as many of these business segments are facing macroeconomic tailwinds, and I believe the stock remains undervalued despite the strong performance since last March.

Q4 earnings recap

Corning beat analyst estimates modestly by reporting earnings per share of 52 cents for the fourth quarter against the consensus estimate of 49 cents. The company topped revenue estimates handsomely by $150 million. Since the earnings release on January 27, Corning shares have gained over 5%, so there seems to be momentum behind the stock, but the returns are not eye-popping by any stretch of the imagination. The below is a breakdown of revenue growth by business segment for the fourth quarter.

Exhibit 1:YoY net sales and net income growth by business segment

Source: Company filings

The company guided for sales and earnings growth in 2021 as well, and even more importantly, free cash flow growth. Based on this guidance and the improving macroeconomic conditions that I will discuss in the next segment, Wall Street analysts have revised their earnings estimates for the company to the upside, which is a

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.