Corning Glass: Undervalued Enough To Justify Risk

Shares are down by nearly a quarter while the S&P is up by 2.2%. As the leading producer of ceramics and glass substrates for LCD, Corning however does not have to worry about its competitive position like other producers in technology. As the business is in a trough period, in my view, it is trading at a substantially depressed valuation.

From a multiples perspective, the stock is cheap at only 6.9x and 7.7x past and forward earnings. It may have a beta of 1.43, but its dividend yield of 2.06% and net cash position of $4.1B, 18% of market capitalization, helps reduce the risk. Accordingly, analysts rate the stock around a "buy" with 14 of the 20 revisions being made upwards.

At the recent third quarter earnings call, CFO Jim Flaws noted:

30% year-over-year, and with EPS, excluding special items, at $0.48. In summary, Telecom, Environmental, Specialty Materials and Life Sciences all had significant year-over-year growth. Glass line in our wholly owned business - Display business did better than our realized expectations from early September. SCP volumes did not decline as much as we anticipated but were still down significantly sequentially. Our quarter 3 results did benefit from the strengthening of the yen...

Despite the continued strong retail environment, panel makers ran at much lower utilization rates during the third quarter, especially in Korea. Strong retail demand in Q3, coupled with lower production rates, led to a significant contraction in supply chain inventory during the quarter. We believe supply chain inventories exited the quarter around 14 weeks.

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