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Corning Earnings up 24%, But Consumer Weakness on the Horizon

Posted on | October 29, 2008 Time: 5:17 pm |

Flat-Panel maker and glass guru Corning (GLW) reported earnings up strongly year-over-year, but notched down guidance for the 4th quarter. Shares are down over 9% in early trading, as the sales forecasts came in lower than even reduced estimates.

Boilerplate Numbers

Net income for the 3rd quarter was $768 million, up 24% YoY from $617 million. Sales were $1.56 billion, slightly short of $1.59B estimates. The 4th quarter guidance was reduced from $1.54B (rev) and $.42 EPS down the way to $1.2-$1.3B and $.20-$.28 EPS. Sales of flat-panel TVs are now forecast to be up just 5% in the fourth quarter, down from the 10% plus rate that the market was discounting as little as 60 days ago.

Investment Thesis Intact, Valuation Remains Crazy

For Corning to have sold off by more than 60% since the summer, investors have clearly not given the company a long-term vote of confidence. Plenty of us still remember how terribly the company navigated the Tech Bubble bursting earlier in the decade. A Secular Trends Portfolio holding, Corning now has two opposing forces at work - strong secular growth in glass and fiber is up against rapidly diminishing consumer strength. This is one of the few consumer-leveraged positions held in the portfolio, and it’s there only because the valuation is so low.

Pick your metric…A P/E of about 4x current earnings, $19B in assets with a miniscule amount of “opaque assets” (goodwill, intangibles) against $1B debt and a $16.5 billion market cap. There’s a lot to like about those numbers. So even if the weak consumer beats out the secular growth, and sales growth is flat for a while, Corning’s valuation should provide a good floor at current levels.

Management said in the conference call that they would drastically cut production levels in order to preserve some semblance of pricing power and avoid a repeat of the “Great Glass Glut”.

Ryan Barnes

More on this topic (What's this?)
Dividend Stock Review: Corning (GLW) (The DIV-Net, 9/20/08)
Manipulating earnings (Canadian Business Blog, 2/24/10)
“One Technology Can Keep America from Going Dark” (Money Map VIP Trader) (Stock Gumshoe, 2/18/10)
Read more on Corning, Net Income at Wikinvest
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Category: Fundamental Analysis, Secular Trends Portfolio, Tech Earnings
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