Does This Glass Giant’s Goldman Sachs Group Inc (GS) Downgrade Make Sense?

Page 1 of 2

Declining TV sales have made most of the investors bearish on Corning Incorporated (NYSE:GLW), the glass manufacturer. The 11% decline in the stock price in 2012 shows this well. Goldman Sachs Group, Inc. (NYSE:GS) also recently downgraded this stock. HDoes a decline in TV sales justify a short position in the stock? Or is there any growth expected in other segments that can offset this decline?

The Investment Case

Goldman Sachs (GS)Corning is our preferred pick in the Display & Lighting space. There are several industry factors that drive our positive view on the shares, including expectations for solid glass demand through 2013 fuelled in part by ongoing screen size expansion in its core LCD TV market, expectations for more moderate glass ASP declines, and secular growth in Gorilla Glass demand as a result of touch screen proliferation. Moreover, with shares trading at ~0.9 times tangible book value and providing a ~2.8% dividend yield, our outlook for $3 billion in free cash flow generation over the next two years provides valuation support.

The Business Drivers

The following chart shows Corning’s different revenue streams:

Does This Glass Giant's Goldman Sachs Group Inc (GS) Downgrade Make Sense?

I believe Corning’s biggest competitive advantage is its expertise in specialty glass and ceramics, coupled with its manufacturing know-how, which has translated to a sustained leading market position across a variety of businesses (LCD glass, strengthened cover glass and optical fiber).

Corning’s largest segment by revenue is Display Technologies (DT) and LCD glass comes under this segment. There is no doubt that the DT segment has matured, with LCD glass’ ASP declines offsetting high-single-digit volume demand growth. However, I believe continued robust growth in the Gorilla cover glass business (I see ~15% annual revenue growth in 2013 and 2014), coupled with margin expansion across its non-LCD businesses, will at least sustain earnings through 2013 and 2014.

The rising auto SAAR bodes well for Corning’s investors and will definitely help the company to grow in the near-future. There are two reasons to believe this:

1)      The Environmental Technologies (ET) segment manufactures filters for the automotive applications. With rising environmental concerns and rising US auto SAAR (which I have covered in my one of previous posts), this segment is ready to fly high.

2)      The company is pushing for the use of Gorilla Glass in the cars. The glass is a scratch and impact-resistant glass that is already being used in cell phones and other gadgets.

A product of Corning’s specialty material segment, Gorilla Glass holds a promising future. This is the same glass that is being used in Nokia Corporation (ADR) (NYSE:NOK)’s Lumia 920, Apple Inc. (NASDAQ:AAPL)’s iPhone 5 and Samsung S3. The market expects strong sales for both Lumia 920 and iPhone 5. The sales for the S3 are estimated above 30 million units, worldwide.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!