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A Glass Act on the Cheap

Post Time:Nov 14,2011Classify:Company NewsView:297



Shattered by falling sales of televisions and personal computers, shares of specialty-glass maker


Then as now, the makers of flat panels, to which Corning supplies glass, drastically cut back on inventories and reduced production levels at their plants in response to an uncertain economic environment that has hindered consumer spending and hurt pricing. The flat-panel makers are taking their cue from the television makers.


Corning shares (ticker: GLW) performed well through the early part of this year, much as a bullish piece in Barron's last December predicted ("


About 85% of Corning's profits are tied to the display glass typically found in TVs and personal computers, as well as smartphones and tablet computers, even though the segment accounts for only 45% of revenue.


The company's other businesses include fiberoptics for telecommunications; emission controls for light-duty, gasoline-powered vehicles and diesel-powered cars and trucks; specialty glass–known as Gorilla glass—that's thin and durable and used for smartphones and tablets, and glassware, such as Pyrex, used both in scientific laboratories and in cookware.


At a recent$15 a share, Corning, the world's leading maker of specialty glass, carries a stunningly low price/earnings multiple of 7.9 times 2012 estimated earnings of $1.89 a share. The share price is only slightly higher than the company's book value of $13.79 a share.


That's quite a comedown for a company that posted $2.1 billion in sales in the third quarter, a 30% increase from the year-earlier period, with all segments posting double-digit percentage growth. Gross margin expanded to about 47% from 44.3%, and Corning beat earnings expectations for the period by posting net income of $811 million, or 48 cents a share, excluding special items. Analysts had been expecting earnings of 42 cents a share, down from year-ago profits of $785 million, or 51 cents a share.


At the time results were released, Corning Chairman and Chief Executive Wendell Weeks asserted the company is "well-positioned" to reach its goal of $10 billion in sales "within the next several years." Also, Chief Financial Officer Jim Flaws predicted retail demand would rise next year, "potentially in the double-digit range again." With inventories at historic lows, higher demand from consumers would set the stage for stronger order demand for glass.


Signalling its optimism about Corning's prospects, the company's board of directors recently approved hiking the annual dividend by 50%, to 30 cents a year, from 20 cents, which brings the dividend yield to more than 2%. It also authorized a stock buyback plan of up to $1.5 billion in shares through 2013, with purchases beginning in the current quarter.


Corning can well afford to give a little extra to shareholders: The company has $4 billion in net cash on its balance sheet, and expects to be generating $7 billion in free cash flow by 2014, up from $2.8 billion last year.


"We believe our future free-cash-flow prospects are excellent, driven by business performance and lower capital spending starting in 2012, as some major projects are finished," CEO Weeks said in announcing the action to enhance shareholder returns. "In our opinion, the company's current stock price represents a significant discount to the real value of Corning's businesses."


Source: http://online.barrons.comAuthor: shangyi

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