800 Pound Gorilla (Glass): Corning Incorporated (GLW)

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Figure 1

One blemish on Corning’s record, and one that has been weighing on its price, is earnings growth.  Not only has average earnings growth been negative over the past five years, but it has also lagged its peers.  Analysts point to narrowing margins and a heavy reliance on consumer electronics as reasons for concern. There is no arguing that Corning is cyclical, is sensitive to economic conditions, and is more volatile than average.  Yet, looking past the obvious, what we have is a company with a strong record of increasing book value and generating sales, earnings, and cash flow.  Figure 2 shows a snapshot of these figures for the past decade (in $ billions).

Figure 2

Though sensitivity to economic weakness is a justified concern, the reality is that Corning has successfully navigated through more than 150 years of economic booms and busts.  I see no reason to assume that Corning will not successfully manage the current business cycle.  When all is said and done, I think Corning will end up trading at levels that better reflect its fundamentals.  Based on an average of relative valuation and discounted cash flow analysis, my fair value estimate for Corning is $19.  That is a 50%+ increase from here, which I expect to be reached in within 12 months.  The bottom line, I think Corning is currently an attractive buy at $12.68 or better.

The article 800 Pound Gorilla (Glass) originally appeared on Fool.com and is written by Victor Lai.

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