Jim Cramer remained positive on Corning Incorporated (NYSE:GLW) during Mad Money on October 1, despite acknowledging that it was among the previous quarter’s S&P 500 weakest stocks. He said:
On the first day of a brand new quarter, October 1, you need a compass. You know what provides you the best compass? What can navigate you the best? Last quarter… We all use S&P 500 as our benchmark in this business. Now, the index finished up 2.03% for the third quarter. Not bad, not great… Okay, now how about the worst performers? The ones that really did not help… Then there’s a great one, Corning. It fell almost 40%.
Now, this one’s misleading because it spiked from $88 at the beginning of the year to $255 at the end of the previous quarter. So, Corning’s trip down to $154 last quarter was pure profit-taking. We had a big win in this one for the Charitable Trust because we visited the Corning factory where they make the glass for Apple, Harrodsburg, Kentucky. From that trip, I became certain that fiber is the future of the data center, not copper. So, I’d happily buy this one back if it ever dips again, which it doesn’t seem to want to.
Cramer suggested waiting for the stock to fall further in a September episode.
Data Center Agreements Support the Fiber Business
Corning Incorporated has secured several major relationships tied to data center construction. Its multiyear agreement with Meta, announced in January, covers up to $6 billion of optical fiber, cable, and connectivity products. The companies began construction on an expansion of Corning’s cable manufacturing operations in North Carolina.
Corning also announced agreements with Amazon and NVIDIA during the second quarter. The NVIDIA partnership calls for a tenfold expansion in Corning’s U.S. optical connectivity manufacturing capacity and an increase of more than 50% in domestic fiber production capacity. Amazon’s agreement covers optical products for its expanding U.S. data center infrastructure.
Financial performance has improved along with those commitments. Second-quarter core sales rose 17% to approximately $4.74 billion, and core EPS increased 30% to $0.78. Management forecast third-quarter core sales of $4.9 billion to $5 billion and core EPS of $0.85 to $0.89. Core figures are Corning’s non-GAAP measures.
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Expansion Requirements And a Rich Earnings Multiple
The agreements require substantial manufacturing expansion. Corning Incorporated identifies its ability to match capital spending with customer demand, obtain necessary materials and equipment, and manage changes in major-customer orders among its business risks. Its solar manufacturing expansion adds further construction, production-ramp, and profitability requirements.
The quarterly outlook also disappointed investors despite earnings exceeding expectations. Barron’s reported that Corning’s July results beat forecasts, but its third-quarter guidance largely matched expectations. The shares fell 12% after earnings, showing that the quarter’s decline included a reaction to the earnings outlook as well as the profit-taking explanation offered by Cramer.
The company trades at approximately 38.5x forward earnings, which represents a premium to some of its peers including Belden Inc. (BDC) and Amphenol Corporation (APH) that trade at 14.9x and 24.6x, respectively. The businesses are not complete competitors and compete in specific segments with GLW, but the comparison shows that Corning retains a substantial earnings premium despite its retreat from the peak discussed by Cramer. We also discussed another peer of Corning along with the company in a September episode.
Fund Ownership Broadens Through Q2
Corning Incorporated appeared in 99 hedge fund portfolios at the end of Q2, up from 91 in the prior quarter, according to Insider Monkey’s database tracking more than 1,000 funds. With over 3 million shares, Polar Capital was the most significant hedge fund holder of the company in Q2. The short-interest reading was 2.31% of the public float as of mid-September.
Cramer’s willingness to buy another dip is based on fiber demand. Corning’s customer agreements support that view, while the scale of its planned manufacturing expansion and its forward earnings premium remain important qualifications.
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