Huge Upside for this Leader in Technology

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Gadgets are getting sleeker and thinner, but by no means more fragile. Most of the high end display devices in the market these days boast of a protective Gorilla glass display. The smartphone industry is booming and so is the television industry. This makes Corning (NYSE: GLW), the manufacturer of Gorilla glass, an interesting investment choice. The company recently announced that it has over 1 billion gorilla glass devices in the market and that the number is expected to only increase.

Besides gorilla glass, the company is also involved in the production of Lotus glass. This eco-friendly display glass helps in enabling Organic LEDs and next generation LCDs on portable devices. According to a recent report, the number of smartphones around the globe is expected to increase by 1 billion over the next 3 years. Customers of Corning include tech biggies like Samsung, Dell, Sony etc. For investors looking to bank on the booming smartphone and tablet industry, Corning would make a great investment choice.

The shares of Corning were beaten down by the market, on its earnings release and its guidance cut. Earnings stood at $521 million, which came down from $811 million in the last year's quarter. Also revenue slid from $2.04 billion to $1.7 billion. However the net adjusted EPS came in at $0.34 which beat the street’s estimates by a fractional margin. The company’s display segment took a beating due to falling LCD prices, which are straining its margins.

Analysts expect the pending $730 million acquisition of Becton Dickinson would add 40% to the existing revenues of Corning. Additionally the acquisition of the life sciences based company is expected to diversify the business operations of Corning.

Management also announced that it would be spending $50 million over the next quarter to restructure its operations in a bid to reduce operating costs. Another reason for strained net earnings was the increased R&D costs which were incurred in the development of Corning’s Willow glass. Analysts expect Willow glass to be revolutionary as it would enable ultra-thin displays with very low power consumptions, to be used on a large scale commercially on portable display devices. Additionally the new type of glass retains the strengths of Gorilla glass, while being lighter and brighter. Since the development is complete, we can expect reduced operating costs in the coming quarters, and of course added revenues once the company finds buyers of Willow Glass in the market.

The company shares its market space with 3M (NYSE: MMM) and Danaher Corp (NYSE: DHR).

<table> <tbody> <tr> <td> <p>Company</p> </td> <td> <p>P/E</p> </td> <td> <p>Net Profit Margin</p> </td> <td> <p>Debt/Equity</p> </td> </tr> <tr> <td> <p>Corning</p> </td> <td> <p>9.31x</p> </td> <td> <p>24.97%</p> </td> <td> <p>16%</p> </td> </tr> <tr> <td> <p>Danaher Corp</p> </td> <td> <p>16.49x</p> </td> <td> <p>12.40%</p> </td> <td> <p>25%</p> </td> </tr> <tr> <td> <p>3M</p> </td> <td> <p>14.08x</p> </td> <td> <p>15.14x</p> </td> <td> <p>35%</p> </td> </tr> </tbody> </table>

Out of the three, 3M is a diversified conglomerate, with the highest debt/equity levels. The metrics indicate that Corning is the most undervalued stock amongst its peers. Also the company enjoys a healthy net profit margin, significantly higher than its peers.

Though the company has been reporting unimpressive financial results, the crash in the stock price appears overdone to me. According to analysts, the stock is down due to the pending $50 million restructuring bill in the coming quarter. The acquisition of Becton Dickinson would not only add to the revenues but also add diversity to Corning’s business operations. Also, the smartphone and tablet industries are rapidly growing, and with the recent launch of touch screen laptop devices in the market, the demand for Gorilla Glass and Willow glass is only going to increase. Additionally since the company’s R&D’s costs are now expected to slide, we can expect better financial performance in the coming quarter, and the over-done crash in Corning’s stock price gives the patient investors a very good opportunity to enter the stock at a low valuation.

Dig Deeper
 
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.


PiyushArora has no positions in the stocks mentioned above. The Motley Fool owns shares of Corning. Motley Fool newsletter services recommend Corning and 3M Company. 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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