Corning Drops 2009 Guidance; How Low Will It Go?

by: Ryan Barnes November 19, 2008 | about stocks: GLW    

Ryan Barnes

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When glass guru Corning (GLW) reported earnings on October 29, I noted my trepidation on the lowered sales outlook and the overall health of the global consumer. I also took a hard look at the balance sheet, and noted that:

Pick your metric…A P/E of about 4x current earnings, $19B in assets with a miniscule amount of “opaque assets” (goodwill, intangibles) against $1B debt and a $16.5 billion market cap. There’s a lot to like about those numbers. So even if the weak consumer beats out the secular growth, and sales growth is flat for a while, Corning’s valuation should provide a good floor at current levels.

Never one to pass up an opportunity to be humble, I’ll note that GLW shares are down over 18% since that day, about 10 points lower than the S&P 500. Today, this Secular Trends Portfolio holding trades for less than book value. On Tuesday Corning dropped its guidance for 2009, which had called for $5.66 billion revenues and $1.24 EPS. To understand the reason why, look no further than this data from market research firm DisplaySearch:

click to enlarge

While the end markets for large screen TVs and monitors are certainly deteriorating, DisplaySearch still estimates a rise in shipments in 2009 versus 2008. The growth may only be 5-10% versus current various industry estimates of 30% or more, but I’ll take a little growth over the severe declines we’re likely to see in other corners of technology.

In that same vein, Corning’s margins will certainly be depressed, but they do command over 50% market share for LCD glass, which should allow for much more pricing power than during the “great glass glut” of 2000-2001. The bad news flow seems to have peaked, what with dropped guidance, newly-reduced fourth quarter guidance, and sales warnings from major Corning customers Philips N.V. (PHG) and Samsung.

Parting Shot:

I think anyone would be hard-pressed to find a tech stock with such powerful long-term growth catalysts trading for a discount to book. Corning’s “dotbomb” reputation may be getting the best of it right now, but the first wave of any value capital coming off the sidelines ought to find Corning on a first pass.

Disclosure: The author does not hold a position in the companies mentioned; Corning shares are held in EpiphanyInvesting Secular Trends Portfolio.

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This article has 1 comment:

  •  
    Dec 04 08:27 AM
    Could not agree more with article Corning should wheather the economic fiasco quite well and when the economy recovers those that are wise enough to buy now should be handsomely rewarded.Even during these tough times,if your TV set fails, you will do whatever is required to get another especially if you have rug rats.
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