Shares of Corning (GLW 1.36%) rallied 31% this year, easily outperforming the S&P 500's 18% gain. The specialty glass and ceramics maker, perhaps best known as the maker of Gorilla Glass for mobile devices, rode high on six straight quarters of top and bottom line beats.

Analysts expect that momentum to continue, with 7% sales growth and 11% earnings growth this year. Corning also still looks surprisingly cheap at 14 times earnings, versus the industry average P/E of 18 for makers of electronic components. It also pays a decent forward dividend yield of 2%, which is supported by a low payout ratio of 26%.

Apple's iPhone X.

Image source: Apple.

Therefore, Corning still looks like a solid investment today. However, we should first take a look back at how Corning crushed the market over the past year.

1. Growing demand for Gorilla Glass

Corning's Specialty Materials unit, which makes Gorilla Glass and other materials, is its fastest growing business. Here's how quickly it grew over the past four quarters.

Specialty Materials:

Q4 2016

Q1 2017

Q2 2017

Q3 2017


$336 million

$300 million

$337 million

$373 million

Annual growth





Source: Corning quarterly reports.

That unit, which accounted for 14% of Corning revenue last quarter, will likely keep growing on strong sales of Apple's (AAPL 1.12%) latest iPhones and other mobile devices. Corning is constantly upgrading Gorilla Glass with tougher versions, like Gorilla Glass 5, and variants like Gorilla Glass Auto for cars and Gorilla Glass SR+ for wearables.

These upgrades will preserve Gorilla Glass' reputation as the "best in breed" glass for electronic devices. That's why Apple invested $200 million in Corning earlier this year through its Advanced Manufacturing Fund, which is aimed at supporting the company's R&D and capital equipment needs.

2. More network upgrades

Corning's second fastest growing business is its Optical Communications business, which supplies optical networks and components for service providers. This market has been tough for many less-diversified fiber players, due to uneven spending and a slowdown in China. Yet Corning's business has thrived thanks to its broader and more diversified portfolio of products and services.


Q4 2016

Q1 2017

Q2 2017

Q3 2017


$819 million

$818 million

$882 million

$917 million

Annual growth





Source: Corning quarterly reports.

Last quarter, Corning announced that it had produced its one-billionth kilometer of fiber, or about a third of all the optical fiber ever produced in history. It also claims that its scale makes it the "world's lowest-cost provider" and that it's the "only true end-to-end supplier of optical solutions."

Corning expects the unit to post more than 15% sales growth in 2017, which puts it on track to generate $5 billion in optical revenues by 2020 (compared to $2.98 billion in revenues in 2016).

Hitting that target could become even easier with its recent purchase of most of 3M's (MMM 0.57%) communication markets business. That business, which sells optical fiber and copper passive connectivity solutions, generates about $400 million in annual sales.

3. Solid Life Sciences and Environmental Tech growth

Two of Corning's other businesses -- its Life Sciences unit, which produces packaging and lab materials, and the Environmental Technologies unit, which produces ceramic substrates and filter products for emissions control -- are often overshadowed by its Specialty Materials and Optical businesses. Yet both businesses are also growing at healthy single-digit clips.

The Life Sciences unit is supported by new products like Corning Valor Glass, a type of pharmaceutical glass packaging which reduces particle contamination, breaks, and cracks while significantly boosting throughput. Pharmaceutical giants Pfizer and Merck both recently adopted the technology.

Meanwhile, its Environmental Technologies business has been bolstered by sales of gas particulate filters (GPFs), which automakers use to meet more stringent emissions standards.

4. Margin expansion

Corning's only soft spot is its Display Technologies business, which makes glass substrates for LCD screens. Sales have been weak over the past two quarters due to sliding LCD prices and slumping demand, but the company is offsetting those declines with tighter cost controls and the growth of its other businesses.

As a result, Corning's gross margins have held steady over the past year and remain comfortably above its historic lows:

GLW Gross Profit Margin (TTM) Chart

Source: YCharts

The key takeaway

There's a lot to like about Corning. It's a major Apple supplier, it supplies best-in-breed glass, ceramic, and optical products, it's broadly diversified across multiple industries, it pays a decent dividend, and it's surprisingly cheap relative to its industry peers. Therefore, I believe that Corning could easily crush the market again in 2018.