Should You Pick Corning Stock At $32 After Q4 Beat?

Corning (NYSE: GLW) recently reported its Q4 results, with revenues falling above and earnings meeting the street estimates. The company reported core revenue of 3.3 billion, down 10% y-o-y but above the $3.2 billion consensus estimate. Its adjusted earnings of $0.39 per share were down 17% y-o-y and aligned with the street estimate. In this note, we discuss Intuitive Surgical’s stock performance, key takeaways from its recent results, and valuation.

GLW stock has seen a decline of 15% from levels of $35 in early January 2021 to around $30 now, vs. an increase of about 30% for the S&P 500 over this roughly 3-year period. However, the decrease in GLW stock has been far from consistent. Returns for the stock were 3% in 2021, -14% in 2022, and -5% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that GLW underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Information Technology sector, including MSFT, AAPL, and NVDA, and even for the megacap stars GOOG, TSLA, and AMZN. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could GLW face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a recovery? From a valuation perspective, GLW stock looks like it is appropriately priced. We estimate Corning’s Valuation to be $32 per share, aligning with its current market price. Our forecast is based on a 17x P/E multiple for GLW and expected earnings of $1.89 on a per-share and adjusted basis for the full year 2024. The 17x P/E multiple compares with the last four-year average of 18x. We have lowered the valuation multiple amid falling sales for Corning and a weak demand outlook for its business segments.

Corning’s revenue of $3.3 billion was down 10% y-o-y due to a 24% fall in optical communications sales amid fewer orders from mobile carriers. The company expects a rebound in optical communication demand over the coming quarters. The company saw its adjusted operating margin expand 230 bps y-o-y to 16.3% in Q4. Lower revenues and margin expansion resulted in earnings of $0.39 on a per-share and adjusted basis, compared to $0.47 per share in the prior year period.

GLW stock is trading at 2.2x sales, compared to the last five-year average of 2.3x. We believe investors will likely be better off waiting for a dip to enter GLW for robust gains in the long run. Furthermore, the lower demand environment and a potential recession remain key risk factors in the near term.

[1] Returns as of 2/2/2024
[2] Cumulative total returns since the end of 2016Invest with Trefis Market-Beating Portfolios
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