Is Corning a Good Stock to Buy Right Now?

Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Corning Incorporated (NYSE: GLW)’s stock is about flat for the year (significantly underperforming broader market indices), and is trading at about half its price from five years ago. In the second quarter of 2012, Corning (which produces glass screens, telecommunications products, ceramics, and specialty glass materials) saw its revenue come in 5% lower than in Q2 2011. Affiliated companies’ earnings- a significant source of income- were also down and costs were about flat, so net income ended up being 39% lower. The first quarter of the year experienced the same rate of decline in earnings. According to the company, the decreases were led by the Display Technologies segment, which is responsible for most of Corning’s net income due to its higher margins relative to the other segments (which make up a considerably larger share of revenue than earnings).

Corning Incorporated trades at 9 times earnings, on both a trailing and forward basis, as its market capitalization of just under $20 billion is a fairly low multiple of its income numbers. Alternatively, its enterprise value of $16 billion- the company has fairly low debt, and over $6 billion in cash alone on its balance sheet- implies an EV/EBITDA multiple of 6.3x. It also pays a dividend yield at 2.8%.

There is moderate interest in Corning Incorporated from hedge funds; no hedge fund or notable investor in our 13F database reported a position worth over $100 million at the end of June but several had stakes which were worth between $50 million and $100 million. Billionaire Richard Chilton’s Chilton Investment Company owned 6.7 million shares at the end of the second quarter, roughly the same amount that it had three months earlier (find more stocks that billionaire Richard Chilton likes). John Levin’s Levin Capital Strategies cut its stake but still owned 5.2 million shares (research more stocks that Levin Capital Strategies owns). Iridian Asset Management, managed by David Cohen and Harold Levy, had 4.1 million shares in its portfolio and this figure was about even with what it had owned at the beginning of April.

Four other diversified electronics companies are TE Connectivity Ltd. (NYSE: TEL), Amphenol Corporation (NYSE: APH), LG Display Co Ltd. (NYSE: LPL), and Molex Incorporated (NASDAQ: MOLX). The forward P/E multiples for this peer group ranges from 10 to 16, so Corning is cheap compared to similar companies despite the fact that it carries the largest market capitalization. TE Connectivity is valued at $14 billion, and the other three peers at less than $10 billion. These peers have also not been doing well over the last year, with TE Connectivity seeing a larger decrease in earnings than Corning did. As a result, we think that Corning is a better buy than this particular peer.

Amphenol and Molex saw more moderate decreases in earnings in their most recent quarter compared to a year earlier, but their forward multiples are at the high end of the range we’ve discussed earlier and we’ve also covered their smaller size relative to Corning. We’re not sure that investors should put enough weight on their slower declines to make them buys. Korean-based LG Display has seen higher sales numbers, with revenue up 14% last quarter over a year earlier, and trades at 10 times forward earnings estimates. It might be a better buy if it turns out that the company’s growth is also improving the bottom line, and that it can continue growing going forward.

We’re impressed by how cheap Corning is, though obviously we are concerned that Corning has not been able to keep its business steady over the last year and that its net income can be so dependent on the earnings of its affiliated companies. However, its peers do not look attractive either and TE Connectivity in particular looks like it might be a worse value, and a potential component of a pair trade.

Know What You Own

With the explosive growth of smartphones worldwide, many investors thought they would ride Corning's dominant cover glass to massive investment returns. That hasn't played out yet, as mobile growth has failed to offset declines in the company's core business. In this brand new premium research report on Corning, a Fool analyst walks through the business, as well as the key opportunities and risks facing it today. Click here to claim your copy, and receive a full year of updates as key events unfold.

This article is written by Matt Doiron and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of Corning. Motley Fool newsletter services recommend Corning. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information. 

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