Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Has Corning Had Its Last Hurrah?

Numbers are important, but they don't always paint the whole picture. When valuing a stock it's equally important to look at what lies under the company's hood. Corning (NYSE: GLW  ) looks cheap by the numbers, but that could signal weakness in the underlying fundamentals of the business. Let's dig deeper to decide whether or not this specialty glassmaker is a steal at its current price.

Then and now
Corning's rich history dates back to the 1800's when Thomas Edison commissioned the company to make the first glass light bulb. Today, more than 160 years later, Corning is a leading manufacturer of specialty glass and ceramics. Unfortunately, the company's taken up a defensive posture lately to counter challenges in the LCD industry.

As the world's largest maker of glass panels for LCD televisions, Corning's profit margins have suffered recently due to weak demand for flat-screen TVs. That's because the company's display technologies business is the biggest of Corning's five operating segments. Last year, 40% of Corning's revenue came from this segment, which was down from 45% in 2010. This is all part of management's plan to build a more balanced company.

A commitment to innovation
According to The Wall Street Journal, the display technologies unit accounted for one-third of total sales and 89% of net income in the last quarter. Still, this company has withstood industry disruption during its nearly two centuries of operation. This isn't Corning's first rodeo, and pricing pressure could only persist until weaker competitors decide the market is no longer attractive.

To show that this isn't Corning's first rodeo, take a look at the last century. In 1912, Corning invented heat-resistant glass that was used on railroad lanterns. Glass windows for the first manned spacecraft to launch from U.S. soil followed in 1961, along with countless other industry-changing products. Corning is on an ambitious journey, and the ability to innovate constantly has proven to be a viable competitive advantage.

During the annual meeting last week, Corning CEO Wendell Weeks explained that the company is in a transitional period as it focuses on new growth segments outside of the LCD industry. While Corning still commands more than 60% of the global market for LCD glass, the company has also found new applications for its proprietary Gorilla Glass.

If this sounds familiar, it's because Gorilla Glass is basically a household name. First-generation Gorilla Glass got its start in Apple's (Nasdaq: AAPL  ) original iPhone, and many analysts including fellow Fool Austin Smith expect this supplier relationship to pay off for Corning again in the future. Let's just say that an iTV made of Gorilla Glass isn't out of the question.

But for now, the technically engineered glass has found a home in other consumer electronic devices, such as Dell's (Nasdaq: DELL  ) Streak 7 tablet, and LG's (NYSE: LG  ) X300 laptop. Dell's Venue smartphone is equipped with Gorilla Glass, as are more than 13 different LG products. Today, Gorilla Glass is used in 600 different product models and featured on more than 600 million devices worldwide. Nearly all of Motorola's (NYSE: MMI  ) products are designed with it including the company's popular Droid smartphones. These companies favor Corning's Gorilla Glass because of its scratch-resistant strength and thinness, which makes it perfect for touchscreen devices.

As part of the company's specialty materials segment, Gorilla Glass currently accounts for about 14% of Corning's revenue. We can expect that figure to grow in tandem with rising smartphone and tablet sales. According to a report from market research firm Display Search, sales of touchscreen devices will soar to $24 billion by 2017. That's a massive market and one in which Corning largely has the upper hand.  

Not enough to impress Mr. Market
Shares of Corning are down 30% for the year, despite beating analyst expectations for its latest quarter. I think the market got this one wrong. Mr. Market can throw rocks at Corning's Gorilla Glass house, but it isn't shattering anytime soon. Strength in Corning's other businesses and increased demand for its Gorilla Glass should help ease the temporary weakness in its display technologies segment. In addition to its specialty materials business, the company's telecommunications unit is also packed with potential.

As my Foolish colleague Anders Bylund recently highlighted in Corning's first-quarter earnings review, sales of fiber-optic cables lifted the telecom segment 7% for the period. With more than 150 years of experience in its glass, Corning may be old-fashioned, but it certainly isn't outdated. Clearly, Corning's last hurrah is far from sight.

While the company faces challenges in the year ahead, I like the stock's long-term appeal. That's why I'm giving Corning an outperform rating on my profile in Motley Fool CAPS. Not only does the stock trade for a P/E of eight, but it also pays a reliable dividend yield of 2.08%. Still, Corning's not the only stock out there with a healthy dividend and a consistently strong business model. Thousands of investors have discovered promising companies in a recent special free report from The Motley Fool. Click here for instant access to the free report and discover three stocks that will help you retire rich.   

Foolish contributor Tamara Rutter owns shares of Corning and Apple. Follow her on Twitter, where she uses the handle @TamaraRutter, for more Foolish insights and investing advice. The Motley Fool owns shares of Corning. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and Corning. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended writing covered calls on Dell. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (2) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1879851, ~/Articles/ArticleHandler.aspx, 10/27/2016 10:47:28 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 hour ago Sponsored by:
DOW 18,169.68 -29.65 -0.16%
S&P 500 2,133.04 -6.39 -0.30%
NASD 5,215.97 -34.29 -0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/27/2016 4:00 PM
GLW $22.92 Down -0.10 -0.43%
Corning CAPS Rating: *****
AAPL $114.48 Down -1.11 -0.96%
Apple CAPS Rating: ****
DELL.DL $0.00 Down +0.00 +0.00%
Dell CAPS Rating: *
LG.DL $67.57 Down -0.34 -0.50%
The Laclede Group CAPS Rating: **
MMI.DL $48.08 Down -1.05 +0.00%
Motorola Mobility… CAPS Rating: *****