Value Series: Corning, Inc.

By Kevin Holloway - December 16, 2011 | Tickers: GLW | 0 Comments

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Introduction

First off I want to let you know where I'm coming from as an investor.  I don't like to pin myself as a "value" guy, but I do like buying companies at a discount.  Even better, I like buying great companies at a discount.  I buy with a long term mindset and a nice Margin of Safety helps me sleep at night.  My idols are Warren Buffett, Ben Graham, John Ness and I follow many of the "value" managers today.  Despite all that value talk, us Fools know that in stock picking it comes down to the underlying company and its ability to grow earnings into the future. 

Company Summary

Corning (NYSE: GLW) is the leading designer and manufacturer of glass and ceramic substrates found in liquid crystal displays, fiber-optic cables, automobiles, and laboratory products. The company has five primary divisions--display technologies, telecommunications, environmental technologies, specialty materials, and life sciences--but most of its revenue stems from its display technologies and telecommunications segments, which generate about 40% and 25% of sales, respectively. (Morningstar, GLW)

The Stats

Cheap!!!  5 Year Valuations

Corning is selling at slightly less than book value and a price to earnings of 6.2.  This is cheap on a standalone basis and very cheap in comparison with Corning's 5 year valuations.  I won't get into details, but companies with low P/E and P/B ratios have shown to outperform their counterparts in the long term.  You can check out “What Has Worked In Investing” available at the Tweedy Browne website.  Cheap is no guarantee for success so let's check out the balance sheet.  

Financial Health

Corning is a very financially health company.  Long term debt to equity stands at 10.65%, which has been significantly reduced over the last 10 years.  Another important ratio to me is the Current Ratio (current assets/current liabilities), which measures liquidity.  Corning has consistently grown this ratio over the last 5 years to over 4.46 last year.   Revenues have increased and gross margin has grown as well.  Cost of Goods Sold has stayed fairly steady over the last 5 years as well as R & D, which is now over 8% of revenues.  They also have a ton of cash on hand, over $4 per share in cash to be exact.  

One thing that bothered me was a significant increase in shares (last 10 years).  This is still something to keep an eye on, but the recently announced $1.5 billion stock buyback plan is welcomed news.  Here’s what management had to say…

“Regarding the share buyback, our decision was based on the opinion that the company's current stock price represented a significant discount to the real value of Corning's businesses.”

Gurus and Insider Buys

When researching stocks I like to see who is buying (or selling) and I pay special attention to investors that I respect.  Here are the most recent Guru moves for Corning:

That’s quite a bit of purchases in the last quarter.  AND not to mention GLW is a Motley Fool Stock Advisor pick.  Another Fool that I highly respect, Anand Chokkavelu, is recommending Corning here.

Fairly significant purchases from a director and the Vice Chairman/CFO:

Risks 

Corning has its risks.  It’s a cyclical company and is sensitive to the economic slowdown.  They are not terribly diversified and most of their profit comes from LCD displays.  It was recently announced that a South Korean company backed out on a contract, which is believed to be LG Display Co.  This contributed to Corning announcing a reduction in their fourth quarter earnings guidance.  Corning enjoys a premium on its glass products, but with this trying environment and a decrease in demand for flat panel TV’s they might be pressured to lower prices.  This could obviously put pressure on margins and earnings.  Glass prices have declined and that is expected to continue into 2012. 

Conclusion

Corning is by no means a set it and forget it stock… well no stock is, but I think you get what I mean.  There is risk involved here and much of it depends on the health of the LCD market and probably the overall economy.  Despite all that risk, I think quite a bit of that concern is reflected in the stock price.  As I’ve detailed above this stock is CHEAP.  The balance sheet is pristine with a current ratio of 4.46 and a debt to equity ratio of 10.65% .  They pay a 2.3% dividend, which was just increased by 50% with a payout ratio of only 9%.  Not to mention the $1.5 billion stock buyback plan. 

As a consumer I am hearing about “Gorilla Glass” (such a cool name) more and more in advertising of smart phones.  I’m also hearing more about the next generation of “Smart” TV’s.  Is that enough?  Well who knows?  It might not be enough right now, but I’m not worried about right now.  In the long term (3 to 5 years) I believe Corning will continue to grow and become a bigger player in the newer generation of TV’s and the smart phone market.  It doesn't hurt that some well respected investors and Corning insiders agree with me.  I currently have a small position in Corning and will be looking to purchase more on the any price drops.

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