February 15, 2021 BARRON’S 17
The pandemic also has posed chal-
lenges for Corning. Early last year, the
company suspended production at its
Wuhan, China, factory, which makes
giant glass sheets for large-screen
TVs. The company’s environmental
business, which makes parts for cata-
lytic converters and other pollution-
control products, fell 9% as auto mak-
ers cut or suspended production. And
a slowdown in network rollouts by
telecommunications carriers resulted
in a 12% slide in sales for Corning’s
optical fiber business.
But Corning is recovering impres-
sively, and its latest initiatives could
finally grab some attention on Wall
Street. After a long stretch of under-
performance versus the S&P 500 in-
dex, the stock is up 32% over the past
12 months, to a recent $37, suggesting
investors are beginning to rethink the
company’s valuation.
In the December quarter, Corning’s
sales were up 17% from the level a
year earlier, and well ahead of Wall
Street estimates. Revenue in 2021 is
expected to grow 14%, to $13.1 billion,
reversing a 2% drop in 2020. From an
earnings perspective, Corning is fore-
cast to outpace the chip sector and the
S&P 500 this year, with earnings ex-
pected to rise 40%, to $1.96 a share.
UBS analyst John Roberts last
month launched coverage of Corning
with a Buy rating and $44 target price,
20% above the recent close. Corning
stock has a dividend yield of 2.6%.
Corning Is
Filling Its
Glass With
New Ideas
The company serves a diverse
set of markets, from smartphones
to vaccine vials. Why the stock
deserves more attention
Corning is
“continually
reinventing
itself, as new
applications
replace older
ones.”
UBS’ John Roberts
By ERIC J. SAVITZ
N
ot many companies can
claim Thomas Edison as a
onetime customer, but
Corning, which was
founded in 1851, has been
around the block a few
times. The company long
ago stopped making light bulbs, cook-
ware, and lanterns, but its glass tech-
nology remains vital for a range of
high-tech products.
The company serves many of the
same end markets as the semiconduc-
tor industry, including telecommuni-
cations, consumer electronics, mobile
phones, and auto manufacturing. But
Corning’s stock is cheaper, by a wide
margin, than chip makers’.
Corning(ticker: GLW) trades for
just 2.2 times estimated 2021 sales,
versus 7 times for thePHLX Semi-
conductor index(SOX). The valua-
tion disconnect shows up in earnings,
as well, with the semi index trading at
26 times expected 2021 earnings,
while Corning is at just 19 times.
There are reasons for Corning’s low
multiples. It’s a one-of-a-kind busi-
ness; the company has no U.S.-listed
peers. And it’s out of the spotlight,
with a home base in New York’s Fin-
ger Lakes region, four hours north-
west of Manhattan. Creating space-age
materials out of glass also has signifi-
cant costs: In 2020, Corning’s re-
search and development expenses
were about 10% of total revenue. Capi-
Courtesy of Corning Incorporatedtal expenditures came to 12% of sales.
Breakthrough
Afterbeingstuckbelow$35forseveralyears,Corningstock
is on the move.
(GLW/NYSE)
Source: FactSet
$
35
30
25
20
15
2017 2020
Roberts writes
that part of Corn-
ing’s appeal is “the com-
pany is continually reinventing
itself, as new applications replace
older ones.” Roberts thinks the com-
pany can compound profits at a 15%
annualized rate through 2023.
Jeff Evenson, Corning’s chief strat-
egy officer, says the company has
learned to apply its technology across
markets—meaning techniques created
for optical networking can be used for
vaccine vials, while technology for
mobile phones can improve automo-
tive displays. Reuse and recycle.
Corning expects a rebound this
year in optical networking, its largest
segment by revenue, as wireless carri-
ers roll out 5G networks.
Display glass is Corning’s second-
largest business, and the company
dominates the market for glass sheets
used for 65-inch-plus LCD televisions.
Sales of giant TVs grew more than
40% last year.
Corning’s Gorilla Glass has been
used in smartphone displays for years,
but in 2020 the company announced
an agreement to provide a new mate-
rial called Ceramic Shield, a hybrid of
ceramic and glass, for Apple’s iPhone
12 line.Apple(AAPL) had previ-
ously invested $450 million in
Corning to help scale its
manufacturing process.
It’s a rare public en-
dorsement from Apple
for one of its suppliers.
Corning’s fastest-
growing business is
likely to come from cars.
The company makes gas
particulate filters, used to
reduce the emission of small
particles; Europe and China re-
quire them in new cars. Corning is
also seeing growing interest in hard-
ened glass for cockpit displays. A new
“hyperscreen” from Mercedes-Benz
features a single 56-inch piece of
curved glass from Corning. It’s the
entire dashboard, including entertain-
ment features, controls, and maps.
CEO Wendell Weeks said on a re-
cent earnings call that Corning can
eventually reach $100 of content per
vehicle—up from $15 a few years ago—
through a combination of in-vehicle
displays and environmental products.
The company’s glass is also helping
to vaccinate the public against
Covid-19. Life Sciences has been the
smallest of Corning’s five divisions by
sales, but demand for its Valor drug
vials is growing. Last year, the U.S.
government awarded Corning a $
million grant as part of its Operation
Warp Speed effort “to support the
vaccination and treatment of billions
of patients.”
All of that business growth is
showing up in the company’s free cash
flow, which is forecast to grow 55%
this year, to $1.5 billion, up from just
$215 million two years ago. Corning’s
own confidence, meanwhile, is show-
ing up in plans to start buying back
stock later this year. At Corning—for
the first time in years—the glass is
more than half full.B
Corning’s cutting-edge glass is used across many industries, even for vaccines.
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