Should You Buy Corning Stock Over Its Sector Peer?

We believe that Corning stock (NYSE: GLW) is currently a better pick over its sector peer Cisco stock (NASDAQ: CSCO), given its better prospects and a relatively lower valuation of 2.1x trailing revenues vs. 3.9x for Cisco. This valuation gap can be attributed to Cisco’s superior profitability and lower financial risk, as discussed below. Looking at stock returns, both of them have declined 12% in the last twelve months, aligning with the 11% fall for the broader S&P500 index. There is more to the comparison, and in the sections below, we discuss why we believe GLW stock will offer better returns than CSCO stock in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of Corning vs. Cisco: Which Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Corning’s Revenue Growth Is Better

• Both companies managed to see little sales growth over the recent quarters. Still, Cisco has witnessed comparatively faster revenue growth of 3.5% over the last twelve months, compared to 0.8% for Corning.
• However, if we look at a longer time frame, Corning has fared better, with its sales rising at an average annual growth rate of 7.9% to $14.2 billion in 2022, compared to $11.5 billion in 2019, while Cisco’s sales fell at an average annual rate of 0.2% to $51.6 billion in fiscal 2022 (fiscal ends in July) from $51.9 billion in fiscal 2019.
• For Corning, the revenue growth was partly driven by increased demand for gasoline particulate filters, given the increased adoption of the emission regulations in Europe and China. However, automotive sales have been trending lower, of late, due to the semiconductor chip shortage issue weighing on overall automotive production.
• Over the recent quarters, Corning has benefited from a pickup in demand for optical fiber as carriers continue to expand their 5G coverage. However, its display technologies sales have trended lower due to lower volumes.
• Cisco’s fiscal 2022 revenues were up 3%, as a 6% rise in product revenue was partially offset by a 2% decline in service revenue.
• Cisco’s Internet for the Future segment, which includes optical networking, 5G, silicon, and optics solution, saw its sale rise 17% y-o-y in fiscal 2022.
• For the six month period ending Jan 2023, Cisco’s total revenue grew 6%, led by a 8% rise in products and 1% growth in service revenue.
• Our Corning Revenue Comparison and Cisco Revenue Comparison dashboards provide more details on the companies revenues.
• The table below summarizes our revenue expectation for both companies over the next three years and points to a CAGR of 5% for Corning, compared to a CAGR of 2% for Cisco.
• Note that we have different methodologies for companies negatively impacted by Covid and those not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to predict recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.

2. Cisco Is More Profitable And Comes With Lower Financial Risk

• Corning’s operating margin of 15% over the last twelve-month period is lower than 26% for Cisco.
• This compares with 16% and 18% figures seen in 2019, before the pandemic, respectively.
• Cisco’s 26% free cash flow margin is better than 18% for Corning.
• Our Corning Operating Income Comparison and Cisco Operating Income Comparison dashboards have more details.
• Looking at financial risk, Cisco fares better. Its 4.7% debt as a percentage of equity is lower than 23.4% for Corning, while its 20.5% cash as a percentage of assets is higher than 5.7% for the latter, implying that Cisco has a better debt position and more cash cushion.

3. The Net of It All

• We see that Corning has seen better revenue growth and is available at a comparatively lower valuation among the two. On the other hand, Cisco is more profitable and comes with lower financial risk.
• Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Corning is currently the better choice of the two.
• The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 16% for Corning over this period vs. a 1% expected return for Cisco stock, implying that investors are better off buying GLW over CSCO, based on Trefis Machine Learning analysis – Corning vs. Cisco – which also provides more details on how we arrive at these numbers.

While GLW stock may outperform CSCO, it is helpful to see how Corning’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for AZZ vs. Beacon Roofing Supplies.

With inflation rising and the Fed raising interest rates, among other factors, GLW stock has seen a fall of 12% in the last twelve months. Can it drop more? See how low Corning stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

[1] Month-to-date and year-to-date as of 3/16/2023
[2] Cumulative total returns since the end of 2016

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