Down 20%, Is Corning Stock Worth Buying Now?

When Corning (GLW 7.54%) released third-quarter 2019 results on Oct. 29, the market seemed indifferent, with shares of the glass technology company up only slightly on the news -- that is, until we recall that Corning stock had already plunged in mid-September after management's early look at Q3 performance, tempering expectations for the company's two largest segments.

In fact, that marked Corning's second such guidance reduction in as many quarters, and leaves the stock down around 20% from its 52-week high, as of this writing.

Now that the dust has settled, it's time to ask: Is Corning stock worth buying on the drop? Let's look at what the company accomplished in its most recent quarter, starting with its headline numbers:

Data source: Corning. GAAP = generally accepted accounting principles. 

Segment performance and temporary market headwinds

To be clear, those GAAP results include the impact of headwinds such as currency exchange, acquisition expenses, and restructuring costs. Adjusted for one-time items, Corning's "core" sales still declined roughly 2.5%, to $2.969 billion. But that translated to a more modest 14% drop in core earnings to $0.44 per share, comfortably above the $0.39 most analysts were modeling.

Broken down by business segment, display technologies net sales fell 7% year over year to $793 million, while the segment's net income fell 15% to $185 million. This drop was driven by a combination of relatively consistent display-glass prices and (just as Corning warned in September) a high-single-digit decline in display glass volume as some TV makers have taken a more conservative approach to panel purchases due to macro uncertainty.

Meanwhile, optical communications saw sales fall 10% year over year to $1.007 billion (also as expected, given lower project spending from certain enterprise and carrier customers), and that translated to a 24% drop in net income to $127 million. 

On a more positive note, environmental technologies sales soared 20% year over year, to $397 million, thanks to the adoption of gasoline particulate filters and strong demand in the heavy-duty market. Environmental segment net income jumped 32% to $79 million.

Specialty materials sales climbed 1% to $463 million, translating to net income of $92 million, with the help of sustained demand for products including Gorilla Glass cover variants. Of note here: In September, Apple announced a new $250 million investment from its advanced manufacturing fund to support Corning's research into glass innovations and manufacturing capabilities for next-generation consumer devices.

Finally, life sciences sales grew 11% to $260 million, translating to a 37% increase in segment net income to $41 million. Corning's Valor Glass also received Food and Drug Administration approval during the quarter as a primary packaging solution for a marketed drug product, paving the way for significant future sales of the novel product.

"We remain confident in our strategy ... "

Corning was forthright with investors in September about the challenges facing its two largest businesses. To help combat those challenges, management is now focusing on adjusting capacity in the display segment to better align with demand, idling certain manufacturing capacity in the optical segment until demand picks back up again, and lowering operating expenses across the consolidated business.

"Corning is successfully taking actions to offset recent headwinds," CEO Wendell Weeks said. "At the same time, we remain confident in our strategy and continue to advance our long-term growth initiatives."

Looking to the rest of the year, Corning reiterated guidance for full-year optical segment sales to fall 3% to 5% from 2018. But there were also pockets of relative strength in its outlook. Display glass volume will fall in the mid-single-digit percentage range between Q3 and Q4, while the ramping up of its Gen 10.5 manufacturing plant should help the display segment continue to outpace the growth of the broader industry.

Corning simultaneously raised its outlook for environmental sales to increase by a mid-teens percentage (up from the low teens previously), and reaffirmed its targets for full-year sales growth for specialty materials "despite a maturing smartphone market." The company also reiterated its expectation for mid-single-digit percentage growth in life sciences segment sales.

So where does that leave investors today?

To be clear, it seems the headwinds holding back Corning's growth are near term and have little bearing on its long-term direction. For shareholders willing to buy now and collect Corning's healthy 2.8% dividend while they wait, I think the stock is a compelling buy today.