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Corning Inc. (GLW) has been a key player on the cutting edge of the tech industry since partnering with Apple (AAPL) for the first iPhone in 2007. Known for innovations like Gorilla Glass, its Q2 2024 earnings report showed record sales growth for Corning's enterprise optical business, driven by the strong adoption of new optical connectivity products tailored for generative artificial intelligence (AI).
Despite beating Q2 expectations, Corning stock sold off after earnings, due to soft guidance for the upcoming quarter. However, Deutsche Bank upgraded the stock to “Buy” post-report, citing the potential for double-digit growth driven by genAI opportunities and the company's strategic initiatives, such as the Springboard Plan.
This upgrade, coupled with the stock's recent pullback from its highs, could have some investors wondering whether this is a prime entry point to pick up shares of GLW for the next leg higher. Let’s find out.
GLW Stock Outperforms the Market
Valued at $32.8 billion, Corning Incorporated (GLW) has been outperforming the market in 2024, driven by a surge in demand for its optical connectivity products - especially those designed for generative AI applications.
Even after accounting for its post-earnings pullback, GLW stock has rallied 25% year-to-date, compared to the S&P 500 Index's ($SPX) roughly 11% rise.
Corning's valuation metrics generally paint a picture of a potentially undervalued stock, especially when compared to its sector peers. Corning's forward price/earnings (P/E) ratio stands at 20.46, which is a discount to the tech sector median of 22.80. Similarly, the forward price/sales (P/S) ratio of 2.30 is about 15% below the tech sector median. This suggests that Corning is valued at a relative discount compared to its peers in the tech sector.
Adding to the company's appeal is its consistent dividend policy. Corning currently offers a quarterly dividend of $0.28 per share, translating to an annual yield of about 2.92%. GLW has raised its dividend consistently every year for over a decade - a factor that adds to the stock's attractiveness, especially in times of market volatility.
Key Drivers Behind Corning's Growth
Corning has been making some impressive strategic moves that underscore its commitment to growth and innovation across various sectors. On Aug. 1, the company announced a major supply agreement with Lumen Technologies (LUMN) for next-generation optical cable. As part of this agreement, Corning will dedicate 10% of its total fiber production capacity to Lumen over the next two years, marking Lumen's largest cable acquisition to date. This collaboration is a key component of Corning's "Springboard Plan," which aims to add more than $3 billion in annualized sales within the next three years by leveraging both cyclical factors and secular trends.
In the consumer electronics space, Corning's Gorilla Armor, featured on the Samsung Galaxy S24 Ultra launched in January 2024, showcases significant improvements in scratch resistance and reduces screen reflections by up to 75%. This advancement not only enhances user experience but also potentially boosts Corning's position in the competitive smartphone market. It’s a clear indication that Corning continues to innovate and strengthen its market presence.
Further expanding its global footprint, Corning has opened a new Digital & IT Centre in Pune, India. This global capability center will focus on enhancing IT capabilities in supply chain, data, cybersecurity, and other digital areas. The company plans to create approximately 100 new positions over the next 24 months to support this expansion, demonstrating its commitment to investing in talent and technology on a global scale.
What Analysts See for Corning Stock
The company's recent second-quarter 2024 financial results, announced on July 30, showcased a return to year-over-year sales growth, exceeding both the revenue and earnings per share (EPS) guidance provided in April. Core revenue for the quarter reached $3.6 billion, a 4% increase year-over-year, with adjusted EPS standing at $0.47 per share, surpassing the consensus estimate of $0.46 per share. The company's enterprise sector within the optical business saw a remarkable 40% year-over-year increase in sales, reflecting the expanding use of AI technology and the need for high-bandwidth connections.
Despite a solid Q2 performance, the company issued softer guidance for the third quarter of 2024. Management is forecasting core sales around $3.7 billion and earnings per share (EPS) between $0.50 and $0.54. This cautious outlook arrived below analysts' forecasts of $3.79 billion and EPS of $0.55, raising concerns among investors about potential headwinds in the near term.
Despite this soft guidance, Deutsche Bank recently upgraded Corning's stock to a "buy" rating, citing expected double-digit EPS growth. This upgrade is based on Corning's strong position in the optical communications sector and its innovations, especially in AI-related technologies. Deutsche Bank is calling for “accelerating growth in 2H24, with Corning's Optical segment growing at a 13% CAGR between 2024E-2027E,” according to a note accompanying the upgrade.
Analysts are generally upbeat about Corning's prospects, with a “moderate buy” consensus and a mean target price of $44.33, representing a potential upside of about 17.3%. Out of 12 analysts, 7 suggest a “strong buy” and 5 recommend a “hold.”
Is GLW a Good Buy?
While Corning's soft Q3 guidance initially led to a sell-off, the company's strategic partnerships, technological advancements, and expansion plans suggest strong growth prospects. The recent upgrade by Deutsche Bank further underscores the potential for double-digit growth driven by generative AI. Given the current valuation and positive analyst sentiment, GLW stock appears to be a promising buy right now for investors looking for long-term gains.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
