Readers of this space know that my investment bias is toward large-cap companies with demonstrated business models and which have a competitive advantage in established markets, preferably with a favorable global trend as a support. In general, turnaround and business model change plays are avoided, but there are exceptions to the rule, and one is Corning.
Corning Inc. (NYSE: GLW), once a reliable but slow-growth kitchenware and cookware company, today represents one of the signature corporate transformation stories of the digital age.
Corning is one of the leading providers of fiber-optic cable, which the company invented more than 30 years ago. Further, its substrates business did not draw Wall Street's attention until technological advances enabled the price-competitive production of flat panel displays in flat panel televisions, desktop monitors and notebook computers.
Display technology currently accounts for more than 40% of revenue, with analysts projecting solid revenue increases in the immediate years ahead. Or, in other words, as Samsung, Sharp and Sony (NYSE: SNE) go, so goes Corning, for the most part.
Analysts see an impressive revenue gain of 15-20% in F2008, following a solid 13% increase in F2007, driven by a strong liquid crystal display business and adequate fiber-optic revenue. A solid balance sheet adds to GLW's strong operational characteristics. The Reuters F2008/F2009 EPS consensus estimates for GLW are $1.93/$2.03.
The risks? Analysts are keeping an eye on Corning's skilled labor costs, as well as the development of technologies that could compete with fiber for information transmission. Also, U.S. display sales could underperform in F2008 if the U.S. economy does not show recovery signs in Q3/Q4 2008.
The First Call mean rating for GLW is: Buy (16 firms), and the mean 2008 target is $32 (high: $39, low: $28).
Stock Analysis: Corning is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than one year should be rewarded from GLW's shares. If you were to purchase shares in this company, consider a stop loss of $18.
Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.
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