Should You Pick Corning Stock Over Its Sector Peer?

We believe that Corning stock (NYSE: GLW) is currently a better pick over its sector peer 3M stock (NYSE: MMM), given its better prospects. Both companies are trading at a similar valuation of around 1.7x to 1.9x trailing revenues. Looking at stock returns, GLW has fared better with -3% returns this year vs. -16% for MMM. However, both have underperformed compared to the broader S&P500 index, up 7%. There is more to the comparison, and in the sections below, we discuss why we believe GLW stock will offer better returns than MMM 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. 3M: Which Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Corning’s Revenue Growth Is Better

• Corning’s revenue growth has been better in recent years. Its sales rose at an average annual growth rate of 7.9% to $14.2 billion in 2022, compared to $11.5 billion in 2019, while 3M’s sales grew at an average annual rate of 2.3% to $34.2 billion in 2022 from $32.1 billion in 2019.
• Corning’s revenue growth over the recent years 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 trended lower in 2022 due to the semiconductor chip shortage issue weighing on overall automotive production.
• 3M’s revenue growth over the recent years was driven by high demand for safety and personal protective equipment, while sales for some of its other products, including office products, were hit during the pandemic due to many offices being shut, given the lockdowns and shelter-in-place restrictions, resulting in lower demand.
• Looking at the last twelve month period, Corning and 3M have seen a similar decline of about 5% in sales.
• Although Corning has benefited from a pickup in demand for optical fiber as carriers continue to expand their 5G coverage, its display technologies sales have trended lower due to a decline in volume and lower demand in the smartphone, tablet, and notebook markets have weighed on the specialty materials business. 3M’s sales are trending lower due to a decline in demand for safety and protective products, primarily respiratory masks.
• Our Corning Revenue Comparison and 3M 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 3M.
• 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. 3M Is More Profitable

• Corning’s operating margin has declined from 15.6% in 2019 to 14.7% in 2022, while 3M’s operating margin fell a modest ten bps from 19.2% to 19.1% over this period.
• Looking at the last twelve-month period, 3M’s operating margin of 18.4% fares better than 12.2% for Corning.
• The decline in operating margin for both companies can be attributed to higher production costs.
• Our Corning Operating Income Comparison and 3M Operating Income Comparison dashboards have more details.
• 3M’s 17.5% free cash flow margin is better than 14.8% for Corning.
• Looking at financial risk, both stocks are comparable. While Corning’s 26% debt as a percentage of equity is slightly better than 29% for 3M, the latter’s 8% cash as a percentage of assets fares better than 4% for Corning, implying that Corning has a better debt position and 3M has more cash cushion.

3. The Net of It All

• We see that Corning has seen better revenue growth in recent years and has a better debt position. On the other hand, 3M is more profitable and has more cash cushion.
• 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.
• If we compare the current valuation multiples to the historical averages, 3M fares better, with its stock currently trading at 1.7x trailing revenues vs. the last five-year average of 2.8x. In contrast, Corning’s stock trades at 1.9x trailing revenues vs. the last five-year average of 2.4x.
• However, it should be noted that MMM stock was weighed down in the recent past due to its exposure to earplugs lawsuits. It could also see liabilities from legacy manufacturing of per- and poly-fluoroalkyl substances (PFAS) chemical compounds. Our note on What Led To A 40% Fall In 3M Stock Since 2019? has more details.
• Our Corning (GLW) Valuation Ratios Comparison and 3M (MMM) Valuation Ratios Comparison offers trends in valuation multiple in recent years.
• The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 17% for Corning over this period vs. a 5% expected return for 3M stock, implying that investors are better off buying GLW over MMM, based on Trefis Machine Learning analysis – Corning vs. 3M – which also provides more details on how we arrive at these numbers.

While GLW stock may outperform MMM, 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 3% this year. 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 5/15/2023
[2] Cumulative total returns since the end of 2016

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