Several Catalysts Exist For This Industrial Giant

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Corning (NYSE: GLW) slid after the company reported its third quarter earnings on October 24. The stock has been trading close to $12 mark during the past year, as business remained flat for the company. Moderate price declines in the LCD TVs market coupled with poor economic conditions in Europe have hurt the company over the previous year. However, there has also been some good news for the company as it got approval to buy Benton's assets. The company has been trying to increase its revenues from other segments to make up for the loss in LCD segment. The takeover of Benton assets will go a long way in helping the revenues of the company.

Takeover of Becton Assets:

Corning received approval from the federal trade commission to buy a division of Becton Dickinson & Co (NYSE: BDX). Becton division being bought by Corning manufactures specialized lab ware. Corning and the Becton division being purchased are the main suppliers of equipment used by researchers in some cell culture work. Life sciences segment sales were $155 million for the quarter, 4% less than the previous quarter. The company plans to integrate the Becton division into life sciences segment. After the completion of the takeover, Corning portfolio in the field will be strengthened significantly.

Takeover will make Corning the single largest player in the market. As a result, the FTC has asked Corning provide assets and assistance to Sigma-Aldrich so it can enter the market. Corning will provide the products to Sigma-Aldrich until its own plant is up and running. The total value of the deal was said to $730 million when it was announced in April.

New Debt Issue:

At the end of October, the company priced $250 million worth of senior unsecured notes maturing in 2017 at 1.45%. The company plans to use the proceeds to pay some of its previous debt. Corning commenced the cash tender offer for $75 million of its outstanding debt. In addition, the company will redeem $174 million worth of debentures. The issuance of new debt and redemption of the previous debt will save between $15 and $20 million in interest expense. The company has made the cash offer for the following debt issues:

<table> <tbody> <tr> <td> <p><strong>Type of Security</strong></p> </td> <td> <p><strong>Outstanding amount</strong></p> </td> <td> <p><strong>Rate</strong></p> </td> <td> <p><strong>Maturity</strong></p> </td> </tr> <tr> <td> <p>Debentures</p> </td> <td> <p>$75,000,000</p> </td> <td> <p>8.875%</p> </td> <td> <p>August 15, 2021</p> </td> </tr> <tr> <td> <p>Debentures</p> </td> <td> <p>$75,000,000</p> </td> <td> <p>8.875%</p> </td> <td> <p>March 15, 2016</p> </td> </tr> <tr> <td> <p>Debentures</p> </td> <td> <p>$100,000,000</p> </td> <td> <p>6.750%</p> </td> <td> <p>September 15, 2013</p> </td> </tr> </tbody> </table>

The company will only accept notes up to $75 million from the three series shown in the table. The company will also redeem $174 million worth of two debentures detailed in the table.

<table> <tbody> <tr> <td> <p><strong>Type of Security</strong></p> </td> <td> <p><strong>Outstanding amount</strong></p> </td> <td> <p><strong>Rate</strong></p> </td> <td> <p><strong>Maturity</strong></p> </td> </tr> <tr> <td> <p>Debentures</p> </td> <td> <p>$100,000,000</p> </td> <td> <p>5.90%</p> </td> <td> <p>March 15, 2014</p> </td> </tr> <tr> <td> <p>Debentures</p> </td> <td> <p>$73,600,000</p> </td> <td> <p>6.20%</p> </td> <td> <p>March 15, 2016</p> </td> </tr> </tbody> </table>

Fitch ratings have given a rating of A- to the new debt offering of the company.

Third Quarter Results:

Corning reported an increase of 7% in its sales for the third quarter from the last quarter. However, the sales figures were 2% below the year ago levels. Earnings per share for the company increased by 10% from the previous quarter to $0.34, but fell by 29% from the last year. The biggest increase in sales came from the specialty materials segment. The segment recorded 23% increase from the last quarter and 21% from the same quarter last year. Telecommunications segment had a poor quarter and recorded a decline of 6% in sales. The biggest segment of the company, Display Technologies, recorded a modest growth due to price declines.


Corning’s main competitors are 3M (NYSE: MMM), Dow Chemical (NYSE: DOW), and TE Connectivity (NYSE: TEL)

With a trailing P/E ratio of 13.3 MMM is the most expensive one among its peers. The rest among this group all support single digit P/E ratios. Thus, the industry is one of the cheapest one in the market. Corning has the lowest P/B ratio of 0.9. MMM trades 4 times the book value. However, it is the only stock that experienced positive EPS growth this year. The industry experienced a setback in this year. DOW has the lowest profit margins and highest debt to equity. With a D/E ratio of 0.2, Corning is much safer than DOW chemical in terms of debt-repayment risk.


The LCD market is showing slow growth due to the slump in the global economy. As a result, the earnings of the company have been affected. However, there is room for Corning to make up sales from the smart phones and tablets segment. The company is also trying to augment its revenues from other segments. The takeover of Becton assets shows that the company will be able to increase its revenues from the Life Sciences segment. In the short term, the earnings of the company may not show much promise. However, I remain confident that the company will be able to do well in the long term.

Interested in Additional Analysis?

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