Should you buy Corning shares after its recent rally?

[Updated: Feb 3, 2022] Rise in GLW shares

The share price of Corning (NYSE:GLW) has seen a strong 21% increase since announcing its fourth quarter results on Wednesday, January 26. Now, Corning’s fourth-quarter earnings of $0.54 per share and on an adjusted basis, were better than the consensus estimate of $0.52, but slightly below our forecast of $0.56. . Corning’s revenue of $3.7 billion was up 10% year-over-year, and slightly above our estimate, as well as the consensus estimate, of $3.6 billion.

Sector performance was in line with our expectations. Sales of environmental technologies fell 21% to $353 million, due to the impact of the shortage of semiconductor chips on the entire automotive industry. On the bright side, revenue from the optical communications segment grew 24% to $1.2 billion, driven by continued demand for 5G and cloud computing. Display Technologies saw its sales increase by 12% thanks to a strong glass price environment. These trends are also expected to continue in 2022.

However, gross margin (down 160 basis points) as well as operating margin (down 110 basis points) were lower for Corning in the fourth quarter. While inflationary headwinds impacted overall margins in the fourth quarter, the company undertook price increases and its impact should be visible on gross margins from the first quarter of 2022 and extend for the remainder of the year, according to the management of the company. A robust demand outlook for its products, along with an expected increase in margins, boded well for investors, as evidenced by its stock price appreciation.

We have revised our model to reflect the latest quarterly results, and we now estimate Corning Rating at around $51 per share (down from $47 previously), or 19% above its current market price of $43. This represents a P/E multiple of approximately 21x based on our EPS forecast of $2.40 for 2022. This compares to the EPS of $2.07 seen in 2021 and $1.39 in 2020. valuation multiple of 21x is higher than the comparable average of 18x for the last three years. We believe a higher multiple is warranted for GLW stock given the strong earnings growth seen of late, a trend likely to continue as well.

Now, what about the short term?

After its recent rally, GLW stock is now sitting on gains of 15% in one month. Will it continue its upward trajectory or is a downfall imminent? Based on historical performance, there are a greater likelihood of a rise in GLW stock over the next month. Out of 89 cases over the past ten years, GLW stock has had a twenty-one day rise of 15% or more, 51 two drove GLW stock higher during the next month period (twenty-one trading days). This historical trend reflects 51 out of 89, or around 57% chance of a rise in GLW stock over the coming month, implying that GLW stock is a good bet at its current levels, in our view. See our analysis on Corning Stock Chance of Upside for more details.

[Updated: Jan 25, 2022] Overview of Corning’s fourth quarter results

Corning (NYSE:GLW) is expected to release its fourth quarter 2021 results on Wednesday, January 26. We expect Corning to likely post online revenue and earnings above high street expectations. Revenues are expected to rise, helped by the expansion of 5G, cloud computing, as well as increased demand for its display glass products. However, the current shortage of semiconductor chips has likely weighed on the company’s automotive business.

The company has been able to increase margins in recent quarters, a trend that is expected to continue. Additionally, our forecast indicates that Corning’s valuation is around $47 per share, or 34% above the current market price of $35. Our interactive dashboard analysis of Corning Pre-Benefits has additional details.

(1) Expected revenue in line with consensus estimates

• Trefis estimates Corning’s fourth-quarter 2021 revenue at around $3.6 billion, matching the consensus estimate.
• Corning should see a recovery in fiber optic demand as carriers continue to expand their 5G coverage.
• The company’s display glass products business is expected to benefit from better price realization. The company expects a tighter glass supply and higher glass prices in the near term.
• However, in environmental technologies, sales could decline due to the impact of the shortage of semiconductor chips on the entire automotive industry. Note that Corning saw strong sales for its gasoline particulate filters, given increased adoption of emissions regulations in Europe and China. But the chip shortage issue is likely to weigh on the segment’s overall performance.
• In Q3 2021, Corning’s revenue grew 20% year-over-year to $3.6 billion, driven by 15% growth in specialty materials, including Gorilla Glass, with continued high demand for premium glass .
• Our dashboard on Corning’s revenue offers more details about the company’s segments.

2) EPS likely to be higher than consensus estimates

• Corning’s fourth-quarter 2021 earnings per share are expected to be $0.56 per Trefis analysis, above the consensus estimate of $0.52.
• Corning’s adjusted net income of $485 million in the third quarter of 2021 reflects a 28% increase from its figure of $380 million in the year-ago quarter. This can be attributed to higher revenues and a 60 basis point improvement in net margins.
• We expect margins to improve in the fourth quarter as well, thanks to a still strong pricing environment. While inflation has impacted raw material costs for several companies, Corning will likely be able to pass on additional costs to customers given the strong demand outlook.
• As such, for the full year of 2022, we expect Adjusted EPS to be higher at $2.40, up from $1.38 in 2020 and around $2.10 in 2021.

(3) Stock price estimate much higher than current market price

• Our Corning Rating of $47 reflects significant upside potential of 34% from its current levels of $35.
• This represents a P/E multiple of less than 20x based on Corning’s expected EPS of $2.40 in 2022.
• If Corning’s results are above street estimates, as we expect, it could drive its stock price higher in the near term, and given that the stock appears to be undervalued at its current levels, at our opinion, investors might be better off buying GLW shares now.
• That said, there are near-term macroeconomic risks. As the US Federal Reserve’s monetary policy-setting meeting approaches on January 26, there are growing concerns that tighter financial conditions could weigh on broader markets.

Although GLW stock may trade higher in the short term, it is useful to see how its peers stack up. See how Corning peers fare on the metrics that matter. You can find other useful comparisons for companies in all industries on Peer Comparisons.

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