This post was written by Minyanville contributor Sean Udall.
Corning Inc. (NYSE: GLW) lowered its guidance on what sounds like even weaker glass sales. This should not surprise anyone, and I have been negative on the glass side of the shop for nearly a year. However, GLW pointed out in its release that it had a strong cash position with very little debt due for the next four years.
Additionally, even though GLW is forecasting lower EPS, it's still in the black. During the last tech crash, it suffered huge losses. At some point we should see people start looking at "old school" valuation concepts like normalized EPS and Book Value. On these metrics, GLW is cheap at 65-100% higher levels. Give GLW a normalized EPS of roughly $1.25 and a seven multiple and you're getting the entire Corning BV operation for free, the IP portfolio for free and the net cash for free.
I was last stopped out of GLW at around $15. I want to see how the stock acts today, but I'm going to start rebuilding a position on this in hours or days. Longer term, glass sales should become a solid cash cow again, while new products take over producing higher margins and a resumption of sales growth. Also, at these levels I would not be surprised to hear some rumbling merger rumors, though I am doubtful about GLW being acquired. More likely, GLW might be looking at doing some asset purchases.
This morning, GLW opened at $17.74. So far today the stock has hit a low of $17.41 and a high of $18.20. As of 12:30, GLW is trading at $17.49, down $2.01 (-10.3%). The chart for GLW looked bullish before today and S&P gives GLW a positive 5 STARS (out of 5) strong buy ranking.
For a bearish hedged play on this stock, I would consider a January bear-call credit spread above the $22.50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in 4 and a half months as long as GLW is below $22.50 at January expiration. Corning would have to rise by more than 28% before we would start to lose money. Learn more about this type of trade here.
So the earnings crunch continues, and here's a look at some companies scheduled to report results this week that are anticipated to be big winners and losers in terms of earnings growth.
Analysts surveyed by Thomson Financial expect the following to report strong earnings growth when compared to the same period of the previous year.
Apache Corp. (NYSE: APA): $4.10 EPS (+53.9%) on revenue of $3.8 billion (+54.6%)
EOG Resources Inc. (NYSE: EOG): $2.34 EPS (+50.0%) on revenue of $1.7 billion (+62.2%)
Avon Products Inc. (NYSE: AVP): $0.47 EPS (+44.7%) on revenue of $2.6 billion (+11.5%)
This post is part of our Big Company, Small Town series, featuring large companies and the small towns in which they are headquartered.
Rest assured, the first decade of the 21st century is not likely to be remembered as a renaissance period in U.S. history. No one will confuse this decade with the Roaring '20s or even the Wonderful '90s.
Further, if the nation needs an example of rebirth and renewal -- it would be hard to find a better one than the story of multinational corporation Corning (NYSE: GLW), nestled in the small town of Corning, New York.
Corning is your classic, feel-good American success story. And doesn't the United States need a few of those today?
Moreover, Corning, arguably, represents one of the signature corporate transformation stories of the digital age.
From cookware to fiber optics to LCDs
Formerly a primarily glass and cookware company, (who doesn't remember that ubiquitous Corning cookware that was safe for microwave ovens?), Corning successfully transformed itself first into a fiber optic company in the 1990s.
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.
Corning (NYSE: GLW) shares are falling today after the Labor Department reported that outside of food and energy, prices rose by 0.4% last month, which was double what analysts had expected. For the full year, inflation was the highest it has been since 1991. As costs for everyday goods increase, fewer people will be interested in purchasing major electronics which need LCDs from Corning. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on GLW.
After hitting a one-year low of $20.04 in January, the stock has risen to make a one-year low of $28.07 this month. This morning, GLW opened at $27.68. So far today the stock has hit a low of $26.94 and a high of $27.68. As of 12:00, GLW is trading at $26.98, down 0.79 (-2.8%). The chart for GLW looks bullish and steady, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.
For a bearish hedged play on this stock, I would consider a July bear-call credit spread above the $30 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in nine weeks as long as GLW is below $30 at July expiration. Corning would have to rise by more than 10% before we would start to lose money. Learn more about this type of trade here.
After hitting a one-year high of $27.25 in July, the stock hit a one-year low of $20.04 in January. This morning, GLW opened at $25.50. So far today the stock has hit a low of $24.95 and a high of $25.70. As of 12:45, GLW is trading at $24.91, down $0.82 (-3%). The chart for GLW looks bullish and steady, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.
For a bearish hedged play on this stock, I would consider an August bear-call credit spread above the $30 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.5% return in four months as long as GLW is below $30 at August expiration. Corning would have to rise by more than 20% before we would start to lose money.
MOST NOTEWORTHY: O'Reilly Automotive, Corning and Lincoln National were today's noteworthy downgrades:
William Blair downgraded O'Reilly Automotive (NASDAQ: ORLY) to Market Perform from Outperform following weak Q1 results, citing the potential for further downward EPS revisions.
Thomas Weisel downgraded Corning Inc. (NYSE: GLW) to Market Weight from Overweight citing balanced risk/reward given the backdrop of a maturing LCD penetration and generational upgrade cycle, and the challenging environment.
Wachovia downgraded Lincoln National Corp. (NYSE: LNC) to Market Perform from Outperform as they believe the weak Q1 market weakness will impact profitability.
"Now 157 years old, Corning (NYSE: GLW) has come from window making to sit at the forefront of two of the fastest-growing segments of the technology space: flat panel TVs and fiber-optic," says tech expert Mark Mowrey.
In The Prudent Speculator TechValue Report, the advisor explains his bullishness on Corning, which has shown a "long-time commitment to future-focused research and development."
"For both its TV and fiber optics markets, the company supplies glass. We're not talking dinnerware, though. Rather, the company is the leader in selling flat panel display glass and fiber-optic cabling. is testament to
"In addition Corning maintains an Environmental Technologies business, which develops emissions and pollution control products, and a Life Sciences business, where the company makes lab glass and drug testing products.
"For the past three quarters, revenue has been growing at a double-digit pace overall, hitting $1.58 billion in the final quarter of last year, as both the Display Technologies and Telecommunications businesses made up for relative weakness in Environmental Technologies.
"Yet, the stock's forward earnings multiple has trended steadily downward, we suppose, as fears increase that both those markets eventually will prove less profitable as competition increases. On the contrary, we think end-market growth will hasten, while Corning's technological lead expands.
As chairman and CEO of Countrywide Financial Corporation (NYSE: CFC), Angelo Mozilo refused to take pay cuts, according to a report by a House committee, and reported by the Wall Street Journal. The focus of a meeting today with the House Committee on Oversight and Government Reform on executive compensation at companies involved in the subprime fiasco will be on Mozilo, who was paid about $250M between 1998 and 2007, plus $406M from his sale of Countrywide shares.
The Wall Street Journal also reported that Corning Incorporated (NYSE: GLW) is looking to sell crystal business Steuben Glass, a unit that has lost $30M over the last five years. If Corning cannot find a buyer for the unit, executives said they will consider other options, including closing Steuben.
OTHER PAPERS:
After failing to meet repayment requests, the UK Times reported that Carlyle Capital Corp Limited (OTC: CARYF), the Dutch-listed affiliate of U.S. private-equity firm Carlyle Group, held emergency restructuring talks with its banks Thursday evening. CCC disclosed that it had received one default notice after receiving margin calls for over $37M from banks since Wednesday but was "unable to meet the demands" of several. The firm expects "at least one" more default notice.
WEB SITES:
Despite shedding several units, Vikram Pandit, Citigroup Incorporated's (NYSE: C) CEO, denied rumors that the bank could put its unit in South Korea up for sale. According to sources, Pandit, currently reviewing operations in an effort to boost earnings and cut costs, said "absolutely no" when directly asked about a divestiture, Reuters reported.
Corning Inc. (NYSE: GLW) shares are rising ahead of the company's earnings announcement on Monday before the market opens. Analysts are expecting earnings of 39 cents per share on revenue of $1.55 billion, a significant improvement over a 31 cents per share profit on revenue of $1.37 billion in the year-ago quarter. GLW has beaten analysts' estimates in each of the last four quarters by an average of 2 cents per share, or 6.85 percent. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on GLW, while option premiums are high before earnings.
After hitting a one-year low of $19.56 in February, the stock hit a one-year high of $27.25 in July. GLW opened this morning at $22.74. So far today the stock has hit a low of $22.55 and a high of $23.16. As of 10:25, GLW is trading at $22.64, up 44 cents(2.0%). The chart for GLW looks neutral and improving, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.
For a bullish hedged play on this stock, I would consider a March bull-put credit spread below the $20 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 13.6% return in just two months as long as GLW is above $20 at March expiration. Corning would have to fall by more than 11% before we would start to lose money.
GLW hasn't been below $20 since March and has shown support around $21.90 recently. This trade could be risky if the company's earnings next week are not so hot, but even if that happens, this position could be protected by the support the stock might find under $22 where it bounced back in November.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in GLW.
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Before the bell: Wall Street headed higher; automakers, retailers in focus
Waiting for the other shoe to drop: The looming credit crisis
Bet on T&A with J&J (JNJ)
