Analysis Corning (GLW) Oct. 27th, 2020
Corning is a high tech material science company with nearly 12 bn$ annual revenues. It is focused on glass materials. Corning`s business fields display technologies - the glass cover for computer and TV screens, optical communication - glas fibres for data transport, specialty materials - the glass cover for mobile phones (gorilla glas), environmental technologies - particle filters for automobiles and pharmaceutical glass soon... is high tech.
A motivation to buy Corning is the growth potential of its high tech businesses of perhaps 5% /year.
This is not a recommendation or proposal to do anything. The data written in this article is not guarranteed. It is my private personal opinion. I`m not independing as I own a position of Corning shares.
Chances & Risks
The q3 quarter was very strong after a weak H1/20. GLW profited from having most of its production and sales in Asia that recovers from covid-19. As Corning has a high capex and fixed costs that let its earnings strongly fluctuate and thus is vulnerablet to corona panic.
GLW faces significant fluctuations in its business. It seems stagnating rather than growing.
Based on an optimistic earning estimate after the corona panic (2021) of 1.0$/share a share price of 30$ the PE of 30 is quite high for this business model.
A concern is the dependency on China as the main direct customers are situated in China. The television industry where the displays are delivered is as well as the mobile device assembling is situated in China. The means a trade war could damage GLW. On the other hand side the customers of TV sets, mobile phones mobile phones are dispersed all over the world.
The technologies of Corning require a high capital deployment. It seems to cost plenty of capex to build new plants for gorilla glas, glas fibres and particle filters. Corning has assets of 27 bn. $ and a capex of 2 bn$ (2018 & as well 2019). On the other hand it has a gross margin of 40%. Such a capex intensive business has the advantage that if the company makes a good decision at the right time, to have the right product and capacity at the right timing ex. q3/18 it can earn a lot if not ... The high capital employment costs flexibility. The net income is subject to significant fluctuations.
Corning as a US entity selling technology to a mostly chinese market might get in the focus of the US vs. China rivalty. Such products like gorilla glas delivered by a US company to mostly chinese mobile phone assembly manufacturers, glas fibres for communication and cover glasses for TV and computer screens might become a target. The chinese state planners might focus on it. It seems likely that China and chinese companies will move in this markets and will build up excessive capacities to grab these markets or simply one of the two rivals will forbid the use of it.
There are 2 substantial innovations from Corning pressing in the market
-The marketing of the very light, scratch resistant Gorilla glas in the automobile industry. I assume it will find a market in premium and electrical automobiles.
- Its new line of pharmaceutical glass packaging named Valor Glass. Valor Glass, if Corning's scientists are to be believed, "substantially reduces particle contamination, breaks and cracks, while significantly increasing throughput" of prescription drugs in glass packaging. The pharmaceutical market is a very slow market due to certification requirements and FDA (Corning got FDA approval(11)) approvals. Its main competitors Schott and Gerresheimer are well established. Hence it will requires many years to achieve a significant share of this market.
It is assumed that these innovations have the potential of making bn$ in additional revenues each and it is only partly compensated by a commodization of existing business.
GLW announced a $5B buyback(8). GLW has a high capex as well. Thus it seems unrealistic in the current business situation.
It looks like if GLW is loosing its focus on non metallic material science. GLW has opened a new R&D site in Montreal focused on telecom software solutions. It joins a network of other R&D labs globally, and it will focus on emerging technologies including artificial intelligence, augmented reality, cloud computing and data analytics as well as software solutions for optical-wireless networks. This sounds nice in the first moment but it is a defocusing. On my point of view GLW should focus its efforts on glass high tech products.
It seems as the growing gorilla glas business is the most promising business of GLW.
The Display glass market is dominated by 3 competitors, Corning 48% share, Asahi 24%, Nippon Electric Glass 23% (1). Actually LCD displays are replaced by OLED displays. A new market are Samsung foldable OLED. These displays use Polyimide material instead of glass!
The brand for the LCD glas is Eagle XG, for OLED Astra.
Number of shares: Issued 1,725 mio. 760 mio. outstanding remainder treasury shares
Quarterly Dividends of 0.22 $ each (13).
Total Assets: 27.5 bn$ (07/20) = 35.7$/outstanding share
Q3/20 Q2/20 Q1/20 Year 2019 Q4/19
Revenues/bn. $ 3 2.56 2.4 11.5 2.82
Free Cash Flow mio.$ 518
Net Income/mio. $ 427 (71) (96) 337 32
Net Income/share c: 0,48 (0.13) (0.16) 1.07 0.01
2019 Segment Split
Major Shareholders from Market Screener 21.05.19
The Vanguard Group, Inc. 7.58%
T. Rowe Price Associates, Inc. 5.53%
BlackRock Fund Advisors 4.66%
SSgA Funds Management, Inc. 4.48%
State Farm Investment Management Corp. 2.25%
PRIMECAP Management Co. 2.01%
Hotchkis & Wiley Capital Management LLC 1.65%
Lyrical Asset Management LP 1.53%
LSV Asset Management 1.41%
Geode Capital Management LLC 1.24%
Corning is mainly influenced by the big asset managers.
(13) 2020/02/06 https://seekingalpha.com/news/3538663-corning-declares-0_22-dividend?utm_medium=email&utm_source=seeking_alpha&mail_subject=glw-corning-declares-0-22-dividend&utm_campaign=rta-stock-news&utm_content=li
(9) 2019/07/31 https://seekingalpha.com/filing/4581731
(6) 2019/4/30 https://seekingalpha.com/filing/4461395
(4) 2019/3/26 https://seekingalpha.com/news/3445427-corning-opens-new-montreal-r-and-d-center-telecom?app=1&dr=1#email_link
(3) 2019/2/06 https://seekingalpha.com/news/3430223-corning-declares-0_20-dividend?app=1&dr=1#email_link
(2) 2019/1/29 https://seekingalpha.com/pr/17394058-corning-reports-excellent-fourth-quarter-full-year-2018-financial-results-continued-progress
(1) 2018/11/28 https://seekingalpha.com/article/4225161-corning-overcoming-headwinds-display-mobile?app=1&dr=1
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