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Headlines
- Corning's Q2 results met expectations with $3.6 billion in revenue and $0.47 earnings per share.
- The company's stock has underperformed compared to the S&P 500 over recent years.
- Corning anticipates Q3 core sales of $3.7 billion, but its earnings forecast fell short of market expectations.
Corning (NYSE:GLW) recently shared its Q2 results, revealing revenues and earnings that aligned with market estimates. The company reported core revenue of $3.6 billion and adjusted earnings of $0.47 per share, driven by strong demand for its optical connectivity products for generative AI. Although the company posted an in-line quarter, we believe its stock may have potential for growth from its current levels of around $40. This article delves into Corning’s stock performance, key takeaways from its recent results, and valuation.
Stock Performance:
Corning’s stock performance in recent years has shown limited movement, inching up from $35 in early January 2021 to around $40 now. In comparison, the S&P 500 saw an approximate 50% increase over this period. The stock returns for GLW were 3% in 2021, -14% in 2022, and -5% in 2023, while the S&P 500 had returns of 27% in 2021, -19% in 2022, and 24% in 2023. This indicates that GLW underperformed the S&P in 2021 and 2023. In recent years, even heavyweight stocks in the Information Technology sector, including MSFT (NASDAQ:MSFT), AAPL(NASDAQ:AAPL), and NVDA (NASDAQ:NVDA), along with megacap stars like GOOG, TSLA, and AMZN, have found it challenging to consistently outperform the S&P 500.
In contrast, the Trefis High Quality (HQ) Portfolio, consisting of 30 stocks, has outperformed the S&P 500 each year over the same period. This portfolio has provided better returns with less risk compared to the benchmark index, as evidenced by its performance metrics.
Current Macroeconomic Environment:
In the current uncertain macroeconomic climate, marked by high oil prices and elevated interest rates, there is a question of whether GLW might face a similar situation as in 2021 and 2023, underperforming the S&P over the next 12 months, or if it will experience significant growth. From a valuation perspective, GLW stock appears to have limited growth potential. We estimate Corning’s valuation to be $44 per share, reflecting a 10% increase from its current market price. Our forecast is based on a 23x P/E multiple for GLW and expected earnings of $1.91 per share on an adjusted basis for the full year 2024. We have assigned a higher valuation multiple compared to the stock’s historical average of around 18x, given the rebound in demand for its optical communication business and the potential for significant growth amid the AI boom. Additionally, while technology stocks face varied challenges, GLW's position in the optical communication sector offers unique prospects amidst evolving technological trends.
Q2 Performance and Q3 Outlook:
Corning’s revenue of $3.25 billion on a GAAP basis was up 0.2% year-over-year, while core sales of $3.6 billion increased by 4%. This growth was driven by display technologies, up 9%, and optical communications, up 4%. Other segments also performed well, with specialty materials sales up 18% and life sciences up 8%. However, this growth was partially offset by a 21% decline in Hemlock and emerging business sales and a 6% fall in environmental technologies’ revenue.
AI-related connectivity solutions boosted optical communication sales, while the display business continued to benefit from higher pricing. The company’s adjusted operating margin contracted by 10 basis points year-over-year to 17.4% in Q2. Corning’s adjusted EPS stood at $0.47, compared to $0.45 in the prior-year quarter.
For Q3, Corning expects core sales to be around $3.7 billion and adjusted earnings per share to be in the range of $0.50 to $0.54. However, this guidance fell short of the $0.55 earnings per share anticipated by the market. Overall, Corning posted an in-line Q2, while the Q3 outlook was slightly disappointing. The rising demand for fiber optics due to increased data processing for AI systems is expected to benefit Corning. While GLW stock shows potential for growth, it is helpful to compare how Corning’s peers fare on crucial metrics.
