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Better Buy: Universal Display vs. Corning

By Leo Sun - May 27, 2021 at 8:29AM

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Which crucial supply chain player is the better overall investment?

Universal Display (OLED -3.77%) and Corning (GLW 0.28%) are both crucial supply chain players in consumer electronics. Universal owns the world's largest portfolio of patents for OLED displays, and it sells the raw materials for manufacturing those high-end screens.

Corning's chemically hardened glass, Gorilla Glass, makes it tough to crack those screens. It also sells glass substrates for display panels, optical hardware, lab equipment for life science companies, and particulate filters for automakers through its environmental technologies unit.

Universal's stock has risen more than 40% over the past 12 months as it's weathered the pandemic-related disruptions to the smartphone and TV markets. But Corning's stock has more than doubled, as multiple tailwinds -- including new phones and network upgrades -- boosted its revenue.

Two Corning engineers test a sheet of Gorilla Glass.

Image source: Corning.

I compared these two stocks last September, and claimed Corning's better-diversified business, lower valuation, and higher yield all made it a more compelling investment than Universal. That call has been right so far, but will it ring true throughout the rest of the year?

Which company is growing faster?

Universal Display and Corning both generated sluggish growth throughout the pandemic last year. But most of that damage occurred during the first half of the year when supply chain disruptions were more prevalent, and both companies generated more stable growth in the second half of the year.

Both companies generated double-digit sales growth in the first quarter, and analysts expect that trend to continue throughout the full year.

Revenue Growth (YOY)

FY 2020

Q1 2021

FY 2021 (Estimated*)

Universal Display

6%

19%

29%

Corning

(2%)

29%

20%

Data source: Annual reports. *Yahoo Finance, May 25. YOY = Year over year. FY= fiscal year.

After resolving its initial supply chain disruptions, Universal's growth accelerated again as stay-at-home trends boosted sales of new PCs and TVs. Rising sales of new 5G phones, many of which will sport OLED screens, will likely complement that growth throughout the rest of 2021.

Corning's specialty materials unit grew as OEMs protected their new smartphones, tablets, and laptops with Gorilla Glass, while stay-at-home trends boosted sales of glass substrates for display panels.

Its optical revenue rose as network operators upgraded their infrastructure to cope with rising bandwidth needs, its particulate filter sales improved as automakers developed cleaner vehicles, and new contracts related to the distribution of COVID-19 vaccines boosted its lab equipment sales.

Which company is more profitable?

Both companies suffered profit declines in 2020. Universal's margins were squeezed by supply chain disruptions and higher raw material costs. All of Corning's segments, except for specialty materials, generated lower profits in 2020 as the pandemic temporarily disrupted all its other markets.

However, both companies resolved those temporary issues and generated impressive earnings growth in the first quarter of 2021.

EPS Growth (YOY)

FY 2020

Q1 2021

FY 2021 (Estimated*)

Universal Display

(4%)

35%

48%

Corning

(21%)

125%

52%

Data source: Annual reports. *Yahoo Finance, May 25.YOY = Year over year. FY= fiscal year.

During Universal's latest conference call, CFO Sidney Rosenblatt pointed out that lower material costs boosted the company's gross margins year over year. He noted those margins could still vary quarter to quarter but predicted its total operating margin would still rise significantly for the full year.

Corning's gross margin was squeezed by higher freight and logistics costs in the first quarter, especially across its display, optical, and environmental tech businesses. However, CFO Tony Tripeny also predicted the company's operating margin would continue to "go up" throughout the rest of the year during its latest conference call.

In short, investors should expect both companies to stabilize their operating margins this year as their revenues and profits rise by double-digit percentages.

But which stock is a better value?

Universal and Corning both started 2021 on firm ground, but one of these stocks is clearly a better value. Universal trades at nearly 40 times forward earnings and pays a forward dividend yield of 0.4%. Corning trades at just 18 times forward earnings and pays a much higher forward yield of 2.2%.

Based on those numbers, and the fact that Corning's business is more broadly diversified across several growing markets, I'm reiterating my previous opinion that Corning is a better overall investment than Universal. Universal is still a promising long-term investment, but I think it will remain out of favor as long as the market favors value stocks over growth stocks.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Universal Display. The Motley Fool recommends Corning. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Corning Incorporated Stock Quote
Corning Incorporated
GLW
$35.90 (0.28%) $0.10
Universal Display Corporation Stock Quote
Universal Display Corporation
OLED
$120.68 (-3.77%) $-4.73

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