All through 2006, and all through this year (so far), analysts have gazed, spellbound, as LCD TV glassmaker Corning (NYSE: GLW) beat their estimates over and over again. Will Monday morning reveal a grand finale to the second year of outperformance, or might this series be canceled?
What analysts say:
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Buy, sell, or waffle? Nineteen analysts give Corning 14 buy ratings and five holds.
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Revenue. On average, they're looking for 13% sales growth to $1.55 billion.
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Earnings. Profits are predicted to rise 26% to $0.39 per share.
What management says:
It's been barely two weeks since we last heard from Corning. Fortunately, what we heard back then was easy on the ears. CEO Wendell Weeks reassured investors that they can expect Corning to report $0.38 to $0.40 per share in "adjusted" earnings on sales of $1.53 billion to $1.56 billion. (Earnings are adjusted to exclude the effect of fluctuations in its stock price, on the value of its contribution to an asbestos-litigation settlement fund.)
It seems LCD TVs are continuing to sell like hotcakes at Best Buy (NYSE: BBY) and Circuit City (NYSE: CC). And while declining end-user sales prices may threaten the margins at panel makers such as AU Optronics (NYSE: AUO) and LG.Philips LCD (NYSE: LPL), and LCD TV assemblers such as Philips (NYSE: PHG) and Sony (NYSE: SNE), they're not forcing Corning, at least, to shave its guidance a whit.
What management does:
To the contrary, Corning's margins just keep going up. Gross and operating margins have been rising steadily all year long. It's really only the net number that bobbles around -- affected as it is by the value of Corning stock contributed to the abovementioned settlement fund.
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Margins
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6/06
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9/06
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12/06
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3/07
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6/07
|
9/07
|
|
Gross
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44.5%
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44.1%
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44.1%
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44.1%
|
45.0%
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46.0%
|
|
Operating
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18.0%
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17.1%
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17.4%
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17.6%
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18.5%
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20.5%
|
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Net
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19.2%
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23.5%
|
35.9%
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36.9%
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35.3%
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36.8%
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All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.
One Fool says:
Regular readers of this column know by now that I've got a serious mental block when it comes to Corning. Under GAAP accounting standards, the stock looks fairly priced to me: a trailing P/E ratio of 17, 15% projected growth -- good to go. It's the fact that the company generates free cash flow significantly below its net earnings that has always stuck in my craw, and prevented my owning what in every other respect seems to me a superb company.
Today, I want to offer a way around that obstacle to Fools who are less stubborn than I. Instead of focusing on GAAP accounting, and instead of obsessing over the always anemic free cash flow, take a look at what Corning is getting for all the capex it spends to the detriment of free cash flow: tangible book value. Over the last five years, this firm has averaged growth in tangible book value per share of just a whisker less than 20% per year. Over the last three years, the rate shot up to 33% per annum, and it was 27% for the last two years.
Any way you look at it, though, and within any time frame you choose, this company is growing its hard asset value at rates that seem to put its 17 P/E ratio to shame. So if you're like me -- searching for a reason to own the stock, but always put off by the free cash flow picture -- consider whether book value might be just the excuse you need to put some money in this remarkable company. I've got a hunch that, three years or so from now, you'll be very happy you did.
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