Wednesday, September 30, 2015

Recommended September Buy: Corning

Ticker GLW (NYSE)
Fiscal Year End December
Recent price (Closing Price on September 30, 2015) $17.11
Market Capitalization $21.60 Billion
52 week range $15.42 – $25.16
Enterprise Value to EBIT (last full year) 6.7
EV to EBIT (7 year average earnings) 8.4
Enterprise Value to sustainable Free Cash Flow (last full year) 7.0
EV to SFCF (7 year average earnings) 11.2
Enterprise Value to Book 1.1
EV to Book (7 year average Book value) 1.3

Corning is a producer of specialty glass and ceramics components for various technology fields. Its biggest business line is the Display Technologies segment, which makes glass substrates used the production of LCD displays for TVs, mobiles devices, etc. It accounts for about 40% of the company’s revenues. The Optical Communications line provides optical fiber solutions, both hardware and services, to the telecom industry, displacing traditional copper based systems. Environmental Technologies produces ceramic substrates and filter products. These are particularly used in motor vehicles to help control emissions. The Life Sciences segment caters to laboratories, supplying them with various highly specialized laboratory products from surfaces to dishes. Finally, the Specialty Materials segment manufactures products that don’t neatly fit into the previous categories, except maybe for the Gorilla Glass brand, which currently is Corning’s most visible product.

Corning registered a Piotroski score of 8 (based on Alpha Architect’s) modifications), failing only to improve its Current ratio and its Gross margin. When it comes to valuation, it is cheap on almost all metrics. I picked it for trading at over 30% to its value based on its average sustainable Free Cash Flow, but it also trades at consistent discounts based on its book value and on earnings before interest and taxes. Historically Corning has not been this cheap relative to its performance in a long time. Its depressed price would seem to reflect fears that its display business, its biggest profit engine, will get pressured by competitors. But the company remains solidly profitable. It has the financial resources and knowledge to innovate and overcome any likely short-term setbacks.

Disclosure: I own shares in Corning Inc.

Corning, Sept 2014 to Sept 2015