Monday, February 20, 2012

The Future's Unclear for Corning Glass

There’s something appealing about an old company that just keeps on reinventing itself as times change.
It’s what first attracted me to Corning (NYSE: GLW),  the New York-based company long known for its quality glass cookware, but more recently for glass that goes into large-screen TVs, computer screens and mobile devices.
Wednesday’s earnings were not bad for Corning. The company met most analysts’ expectations. But its forecast, at least for the short-term, was far from glittering. There’s a glut of LCD TV screens out there, and as TV prices continue to drop, glass makers like Corning are going to have to sell them on the cheap.
As a result, the company expects declining prices, which means declining profits from that segment of its business. Since display glass is Corning’s single biggest business segment, significant growth for the company will likely have to wait.
Does that make Corning a bad buy, or has the market provided investors with a pretty attractive price? The answer may depend on two things: Your patience, and your faith that the company can turn things around.
Let's get to some numbers
From a value perspective, Corning looks cheap. It sells at just 7 times earnings. What’s more, Thursday’s $12.67 share price was below book value. And Corning pays out a dividend that yields 2.37%.
Investors buying at these prices are essentially getting any growth for free. Of course, if that growth never arrives, you might also be sitting on shares for some time before there's appreciation.
Turning the corner
I like Corning’s chances, mostly because the company has a long history of making transitions. Corning was born some 150 years ago, making glass bulbs for Thomas Edison’s incandescent lamps. It developed the first glass that could hold up well to the high temperatures of baking, then it developed glass for radio and television tubes.
By the 1970s, it was making optical fibers and paving the way for a new way to transport data across long distances that would take us into the Internet age. Then came glass for flat-screen TVs, for which Corning was once able to fetch a premium. You remember when those big LCDs were selling for $2,000?
Long story short: Corning has continued to find new ways to use glass to make our lives better or easier. We have no good reason to believe that won’t continue.
Back to the here and now
Sales of Gorilla Glass for hand-held devices are hurtling upward, nearly tripling over last year. That’s a great sign, and Corning continues to improve on the glass it offers those device makers, keeping it in the position of market leader.
In other areas, sales in its telecommunication segment -- mostly fiber optical wire -- grew 11% over 2010. Sales of specialty materials were up some 21%. So not all looks dreary for Corning.
But the question remains as to whether it can shore up its TV glass business while these other segments grow. The company has been through a similar situation before, in 2006, and it managed to ride out the storm. It can put that experience to use in this round of oversupply. 
In the meantime, Corning should sell at prices that look cheap. This isn’t a situation that the glass maker expects to clear up at least for another quarter, and maybe further into the year.
The bottom line
I’m in no hurry to sell the small position I have in Corning. But I’m also in no great rush to add shares, since I think the opportunity to buy at these prices will remain for some time. In the meantime, I’ll keep it on my watchlist and consider adding shares if prices continue to drop.

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