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Analysis Corning (GLW) Update oct. 29th, 2019 

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... 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

GLW faces significant fluctuations in its business. It seems more stagnating than growing. 

GLW cuts its full year guidance for its optical communications and display technologies unit. It assumes a 3 - 5% revenue decline for 2019 (10)

In Q2/19 GLW faced an unrealized non cash after tax loss on adjustments with currency hedging and foreign debt. 

Based on an earning estimate of 1.4$/share a share price of 32$ it the PE of 23 is 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 28 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. 


Another risk is that such products like gorilla glas, glas fibres for communication and cover glasses for TV and computer screens are products that chinese state planners might have in mind when they make plans to devolop the chinese economy. Most plants for TV cover glasses are situated in China. It seems possible that China and chinese companies will get access to the technologies and will build up excessive capacities to grab these markets. 

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 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 might increase the debt load. This is a big risk in case of an eceonomic downturn.  

Some observations 

It looks like if GLW is loosing its focus on non metallic material science. They built  has formally 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 profitable business of GLW. The profitability of the display market is fluctuating. 

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.

Some Data

Number of shares: Issued 1,715 mio.    780,866,098  outstanding    937 mio. treasury shares   

Quarterly Dividends of 0.2 $ each (3)

2019 CapEx guidance is $2 billion with expenditures in each of the five market access platforms.

Total Assets: 28 bn$ = 36$/outstanding share

Q3 2019 Data

Revenues:  2934 mio. $ (Q3/19), 8686 mio. $ (9m/19) 

Net Income: 337 mio. $ (Q3/19), 928 mio. $ (9m/2019) 

Net Income/share: 0.38$ (Q3/19), 1.03 $ (9m/19) Estimate 2019 : 1.4$/Share

From "core numbers" thus the difference to the real data. 

 

 

Major Shareholders from Market Screener 21.05.19

Name                                                                       %

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. 

 

Some references

(12) 2019/10/29 https://s22.q4cdn.com/662497847/files/doc_financials/2019/q3/2019-10-29-Q3-2019-Earnings-FINAL-with-appendix.pdf

(11) 2019/10/25 https://seekingalpha.com/news/3509738-cornings-valor-glass-draws-fda-packaging-approval

(10) 2019/09/17 https://seekingalpha.com/news/3499666-corning-cuts-sales-outlook-optical-display-units?dr=1#email_link

(9) 2019/07/31 https://seekingalpha.com/filing/4581731

(8) 2019/07/17 https://seekingalpha.com/news/3478486-corning-announces-5b-buyback?dr=1#email_link

(7) 2019/05/21 https://www.marketscreener.com/CORNING-INCORPORATED-12788/company/

(6) 2019/4/30 https://seekingalpha.com/filing/4461395

(5) 2019/4/26 https://seekingalpha.com/article/4256921-corning-displays-helped-tailwinds-2019?dr=1

(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

2018/11/28 https://seekingalpha.com/article/4225225-corning-unique-company-playing-multiple-growth-markets?app=1&dr=1

2018/10 https://www.fool.com/investing/2018/10/23/cornings-growth-accelerates-as-investments-begin-t.aspx

https://seekingalpha.com/article/4208689-henkel-value-underfollowed-european-giant?app=1&dr=1

 

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