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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Corning

August 28th 2009 Corning
NYSE Symbol: GLW
Industry: Glass maker
Price as of 8/28: $ 15.91

The Great Recession has caused many consumers to pull back on discretionary spending. However, a couple of luxury items have maintained their strong demand through out this down turn. One item that has sold well is the Apple iphone. Apple has done a phenomenal job of providing consumers with what they want and their stock has responded accordingly. A second item where demand has remained strong is the LCD TV. The largest provider of glass for LCDs is this weeks featured stock, Corning. Corning barely survived the tech bubble at the turn of the century, loading up on debt just as demand for fiber optics dropped off a cliff. During this recession, Corning and the rest of the techs, entered with balance sheets in much better shape. The fundamentals for Corning have surprisingly remained strong this last year and should improve with the economic rebound over the next several years.
Corning reported strong earnings in July. The company reported 39 cents a share or $611 million, beating estimates by 7 cents a share. Revenues fell 17.6% year over year to $1.4 billion, beating consensus. Gross margins were 41%, an increase over first-quarter gross margins of 27%. Display technologies glass volume rose dramatically in the quarter. Management indicated that the resurgence in demand for LCD glass will force the company to restore much of the previously idle production capacity as quickly as possible to meet customer needs. Approximately 40% of the second-quarter LCD shipments came from existing inventory. Current inventory supplies are 16% less than the second quarter last year, compared to retail demand that has been running approximately 15% ahead of a year ago. Corning believes third-quarter glass shipments will be flat to up slightly from last year and retail demand is forecasted to continue growing at double-digit rates in the back half of this year.
Corning's stock has doubled from the March lows, but the stock remains inexpensive. Currently, the stock trades for 10.6 times earnings, 5 times sales, and 1.8 times book value of $9 a share. Corning has performed a dramatic turnaround since 2000. Back then, Corning had over $5 billion in debt, little cash, and big losses every quarter. Today, the company has over $3 billion in cash and paired down the debt to just $2 billion. The company has reinstated the dividend, but it remains small at just 1% so the stock is for capital appreciation. But all the industry data remains strong for Corning. The stock has received a number of upgrades with price targets in a range of $19 to $20 a share. That translates into a PE of just 12. The love-fest consumers have for large flat screens TVs bodes well for Corning and their stock.