What happened
Shares in materials science company Corning (GLW 6.25%) rose 24% in 2020, according to data provided by S&P Global Market Intelligence. The year's performance marks a strong recovery from the lows of March. In a nutshell, Corning's sales are recovering and the market is pricing in strong growth in 2021.
Image source: Getty Images.
Despite the ravages to the global economy in 2020, Corning managed to eke out a 2% year-over-year sales increase in the third quarter. It was driven by a 4% increase in display technologies revenue (OLED and LCD displays for televisions, notebooks, and monitors) and a 23% increase in specialty materials (glass and other materials used in smartphones, semiconductors, and general industrial applications). Both factors helped to offset declines in optical communications (fiber optic and cable), environmental technologies, and life sciences.
So what
The early recovery in sales from consumer electronics is largely a consequence of the onset of a recovery in China. It's something the company hopes to build on in 2021 as the global economy opens up. In particular, Corning stands to benefit from increased investment in 5G networking, an automotive production ramp-up, and a general improvement in industrial activity.
In this context, Wall Street analysts are forecasting an 11.2% increase in sales in 2021, which should result in a 36% increase in earnings per share to $1.87.
Now what
Investors will want to see the positive sales momentum generated in the third quarter feed through into the fourth quarter, and then into 2021. But the longer-term question is whether its profit margins and free cash flow generation from revenue are in some sort of long-term decline due to competition in its industry.
Data by YCharts. TTM = trailing 12 months.
If margins are in a long-term decline, then long-term earnings assumptions may need to be dialed down. Alternatively, if margins start rising again, then the opposite holds -- something to keep a close eye on with Corning.
