What’s Next For Corning Stock After An Upbeat Q1?

Corning (NYSE: GLW) recently reported its Q1 results, with revenues and earnings exceeding our estimates. The company reported core revenue of 3.3 billion, down 3% y-o-y but above our $3.1 billion estimate. Its adjusted earnings of $0.38 per share were down 7% y-o-y and were slightly above the $0.35 forecast. Although the company posted an upbeat quarter, we think its stock is appropriately priced at levels of $34. In this note, we discuss Corning’s stock performance, key takeaways from its recent results, and valuation.

Firstly, let us look at Corning’s stock performance in recent years. GLW stock has seen little change, moving slightly from levels of $35 in early January 2021 to around $35 now, vs. an increase of about 35% for the S&P 500 over this roughly three-year period. Overall, the performance of GLW stock with respect to the index has been lackluster. 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 strong jump? From a valuation perspective, GLW stock looks like it is fully valued. We estimate Corning’s Valuation to be $34 per share, aligning with its current market price. Our forecast is based on an 18x P/E multiple for GLW and expected earnings of $1.91 on a per-share and adjusted basis for the full year 2024. The 18x P/E multiple aligns with the average over the last five years.

Corning’s revenue of $3.0 billion on a GAAP basis was down 6% y-o-y due to a 17% fall in optical communications sales amid continued softness in demand from mobile carriers, and an 8% fall in Life Sciences revenue. The company expects a rebound in optical communication demand over the coming quarters. Looking at other segments, Display Technologies saw a 14% rise in sales, driven by higher volume and pricing gains. Specialty Materials sales were up 12%, and Environmental Technologies sales grew 6%. The company saw its adjusted operating margin remain stable y-o-y at 15.5% in Q1. The company’s adjusted EPS stood at $0.38, compared to $0.41 in the prior-year quarter.

Corning expects its Q2 core sales to be around $3.4 billion and adjusted earnings per share in the range of $0.42 and $0.46. The company has some positives to look forward to. Pricing actions taken in the second half of 2023 should continue to aid its Display Technologies business. The demand from mobile carriers is expected to rebound later in the year. An increased adoption of gasoline particulate filters will continue to bolster the Environmental Technologies business. However, we think much of these positives are already priced in for Corning. GLW stock has risen 7% in the last five days, and it now trades at a valuation multiple of 18x forward expected earnings, aligning with its historical average. We believe investors will likely be better off waiting for a dip to enter GLW for robust gains in the long run.

[1] Returns as of 5/2/2024
[2] Cumulative total returns since the end of 2016