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Analysis Corning (GLW) Feb 14th, 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 large share of business in Asia with a 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

Green socialist governments seized power in North America and Western Europe. A politic of arbitrary shut downs of large parts of the economy due to epidemics, destroying industry (regulation, climate fraud) and excessive spending of newly printed money may lead to a declining high inflation economy In these important regions of the world. Let`s name it crazy economy. GLW is less effected as it makes a large chunk of business in Asia. 

The q3 and q4 were strong after a weak H1/20. GLW profited from having most of its production and sales in Asia that recovers from covid-19 panic. 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. Over the last couple of years it seems more 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 or a disconnection of the super powers could damage GLW. On the other 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 would increase debt. It is perhaps not the best idea in the current business situation.   

Some observations 

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.

Some Data

Number of shares: Issued 1,726 mio., treasury 961 M,    765 M.  outstanding  shares  dec. 31,2020 


Quarterly Dividends of 0.24 $ each. 

Total Assets: 27.5 bn$ (07/20) = 35.7$/outstanding share

 

Some Numbers

                                     2021e   2020   Q4/20   Q3/20     Q2/20      Q1/20    Year 2019  Q4/19

Revenues/bn. $                            11.3    3.4           3          2.56          2.4          11.5      2.82

Capex M$                       1400     1400                                                               2000

Free Cash Flow mio.$                    948     464        518

Net Income/mio. $                        512     252        427       (71)          (96)          960        32  

Net Income/share c:                     0.54   0.28       0,48    (0.13)        (0.16)        1.07        0.01

Net Debt  bn$                               8.3                                                               8.4

Dividend c/share                 24                 22          22          22             22         4x20


 It seems that some business fields lost profitability in the corona panic. 


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

(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

(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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