Corning (GLW) equity recommendation

1,278 views

Published on

Corning (GLW) equity buy presentation for the Student Managed Investment Fund.

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,278
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
23
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Corning (GLW) equity recommendation

  1. 1. CorningIncorporated NYSE: GLW Corning Inc. (GLW) NYSE
  2. 2. Screening CriteriaMarket Cap of $500m to $25bilP/E < 20Profit Margin > 15%Debt to Capital < 50%Dividend Yield > 2%Revenue Growth YoY > 15%
  3. 3. Company Profile• Corning Incorporated is the world leader in specialty glass and ceramics• Drawing on more than 160 years of materials science and process engineering knowledge, Corning creates and makes keystone components that enable high-technology systems for five different segments: 1. Display Technologies: Manufactures glass substrates for active matrix liquid crystal displays (LCDs) that are used primarily in notebook computers, flat panel desktop monitors, and LCD televisions. 2. Telecommunications: Produces optical fiber and cable, and hardware and equipment products, such as cable assemblies, fiber optic hardware, fiber optic connectors, optical components and couplers, closures and pedestals, splice and test equipment, and other accessories for optical connectivity to the telecommunications industry. 3. Environmental Technologies: Offers ceramic technologies for emissions and pollution control in mobile and stationary applications, including automotive and diesel substrate, and filter products. 4. Specialty Materials: Manufactures products that provide approximately 150 material formulations for glass, glass ceramics, and fluoride crystals used in commercial and industrial markets. 5. Life Sciences: Provides general labware and equipment, as well as tools for cell culture and bioprocess, genomics and proteomics, and high-throughput screening. This segment also develops and produces various technologies, such as the Corning HYPERFlask Cell Culture Vessel for increased cell yields; and other novel surfaces, which include the Corning CellBIND Surface and the Corning Osteo-Assay surface. Source:Yahoo! Finance
  4. 4. Glass Substrates and LCD panels• During 1980s, Corning developed the fusion method for making glass substrates – Used in Thin Film Transistor Liquid Crystal Display (TFT-LCD) panels• TFT-LCDs used in laptops, LCD monitors, LCD TVs, digital cameras, PDAs and navigators• In 1995, Samsung & Corning established jointly owned Samsung Corning Precision Glass – Corning owns 50%, Samsung 43%• 2010: $1,452 million in equity earnings – Royalty income from licenses patents to SCP
  5. 5. Basic InformationMarket Cap $23.23 BillionFiscal Year End December 31Last Earnings October 26Next Earnings January 25Institutional Ownership 81.49%Insider Ownership 0.23%# of Analysts 23S&P Quality Ranking BS&P Credit Rating BBB+
  6. 6. Revenue Breakdown by Country
  7. 7. Risk Factors• Customer Concerns – “Our sales could be negatively impacted by the actions or circumstances of one or more key customers leading to the substantial reduction in orders for our products” • Corning’s ten largest customers accounted for 55% of our sales. • Display Technologies: 3 customers accounted for 72% of total segment net sales when combined • Telecommunications: 1 customer accounted for 15% of segment net sales • Environmental Technologies: 3 customers accounted for 86% of total segment sales in aggregate • Specialty Materials: 3 customers accounted for 43% of segment sales in 2010 • Life Sciences: 2 distributors accounted for 37% of segment sales • Samsung Corning Precision’s sales were also concentrated in 2010, with sales to two LCD panel makers located in South Korea accounting for approximately 93% of total Samsung Corning Precision sales. Source: GLW 10-k
  8. 8. Risk Factors• Product Innovation – Product markets are characterized by rapidly changing technologies, evolving industry or government standards and new product introductions. Success depends, in substantial part, on the successful introduction of new products, or upgrades of current products, and the ability to compete with new technologies• International Concerns – Geographical concentration of factories and operations – Complexity of managing global operations – Difficulty in protecting intellectual property – Natural disasters – Foreign currency risk• Environmental regulations – Manufacturing process generates chemical waster, waste water and other industrial waste and green house gases Source: GLW 10-k
  9. 9. Q3 Report• Sales were $2.1 billion, an increase of 3% sequentially and 30% year over year.• Display Technologies Sales were $815 million – 7% sequential and 26% year-over-year increase – Price declines in the quarter were in line with the company’s expectations – Display supply chain experienced a contraction in the third quarter as demand for LCD TVs remained strong worldwide while panel makers ran at lower utilization rates• Telecommunications segment sales were $560 million – increase of 2% sequentially and 21% year over year – Enterprise network products sales increased 9% – Fiber-to-the-home sales increased more than 30% year over year• Environmental Technologies segment sales were $247 million – Slight decline sequentially, but a 19% year-over-year increase
  10. 10. Q3 Report• Specialty Materials segment sales were $299 million – increase of 6% sequentially and nearly 90% over last year – Segment net income grew significantly from $23 million to $38 million – The business continues to benefit from extremely strong market acceptance of its industry-leading cover glass, Corning® Gorilla® Glass, for handheld devices, tablets, and laptop computers. – Gorilla Glass sales were $210 million in Q3, an increase of 11% over the second quarter• Life Sciences segment sales of $153 million were consistent sequentially – increased 22% year over year – Recent acquisitions contributed significantly to the sales increase
  11. 11. Gorilla Glass90%80%70%60%50%40%30%20%10%0% 83% Gorilla Glass 75% GG penetration 40% GG penetration penetration in in ipads in Tablets smartphones with (excludingipad) touch -B of A Merrill Lynch Global Research
  12. 12. Industry• Total glass volume, including SCP, was down about 10% for the quarter. – Worldwide glass market also declined 10%• Panel shipments outside of Korea were flat sequentially, industry glass shipments outside of Korea were down 5% – Our glass shipments were up in the mid-single digits, indicating we regained share during the quarter• Supply chain contracted by about 3 weeks – 17 weeks at the beginning of Q3 to 14 weeks exiting the quarter – Inventories in square feet are at a level we have not seen since early 2009
  13. 13. Looking Forward• Glass volume at SCP is expected to increase at least 20% sequentially – Regaining share lost in the previous quarter & higher panel maker utilization rates• Retail demand for LCD products continues to be stronger than actual LCD glass demand – Retail demand should be up about 13% for the year. – Supply chain correction ends, glass demand will resume growth more in line with retail performance• Seasonal expected sales declines across Telecommunications, Environmental Tech, Specialty Materials and Life Sciences• Increased quarterly common stock dividend and authorized $1.5 billion stock buyback program – Reached an agreement with Samsung to increase the payout from 40% to 70% effective in 2012 – in line with its performance as a consistent cash generator
  14. 14. Corning Income Statement FQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007 FQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007Revenue 7768 6399 4947 6446 5647 - Cost of Revenue 4260 3468 3196 3258 3055 54.8% 54.2% 64.6% 50.5% 54.1%Gross Profit 3508 2931 1751 3188 2592 45.2% 45.8% 35.4% 49.5% 45.9% - Operating Expenses 1707 1565 1399 1616 1418 22.0% 24.5% 28.3% 25.1% 25.1%Operating Income 1801 1366 352 1572 1174 23.2% 21.3% 7.1% 24.4% 20.8% - Interest Expense 100 105 69 68 82 1.3% 1.6% 1.4% 1.1% 1.5% - Foreign Exchange Losses (Gains) 10 0 0 0 0 0.1% 0.0% 0.0% 0.0% 0.0% - Net Non-Operating Losses (Gains) (2158) (2131) (1173) (1778) (1133) -27.8% -33.3% -23.7% -27.6% -20.1%Pretax Income 3849 3360 1456 3282 0 49.5% 52.5% 29.4% 50.9% 0.0% - Income Tax Expense 492 106 (61) (2443) 0 6.3% 1.7% -1.2% -37.9% 0.0%Income Before XO Items 3357 3254 1517 5725 2084 43.2% 50.9% 30.7% 88.8% 36.9% - Minority Interests (1) 0 0 0 5 0.0% 0.0% 0.0% 0.0% 0.1%Net Income 3358 3254 1517 5725 2079 43.2% 50.9% 30.7% 88.8% 36.8%
  15. 15. Income Statement• SG&A was $216 million compared to $284 million in Q2 – Primarily due to lower compensation accruals, as well as a $22 million post-transaction credit• Equity earnings were $324 million, a decrease of 24% from Q2 – Driven by lower volumes at SCP and softer silicone demand at Dow Corning• Other income was $27 million in Q3 versus $43 million in Q2 – Decrease is primarily due to lower royalty income, a direct result of lower sales at SCP• Gross margin growth was primarily driven by strong operating performance in Display and Specialty Materials
  16. 16. Non-Operating Gains• A tax benefit in the amount of $265 million for excess foreign tax credits from repatriation of current year earnings of certain foreign subsidiaries• An increase of $157 million or 55% in equity earnings from our equity affiliate Dow Corning resulting from improved volume at Hemlock Semiconductor Corporation (Hemlock), Dow Corning’s consolidated subsidiary that makes high purity polycrystalline silicon for the semiconductor and solar industries, and non- recurring favorable tax items in the amount of $63 million.• Settlement of business interruption and property damage insurance claims impacting our Display Technologies segment in the amount of $324 million (pre- tax), coupled with the absence of related costs in the amount of $30 million for accelerated depreciation charges and asset write-offs recorded in 2009• Absence of restructuring charges in 2009 totaling $228 million for costs associated with workforce reductions in all of our operating segments• $226 million from the impact of movements in foreign exchange rates• $900 million special dividend from Samsung Corning Precision in Q4 2010
  17. 17. Corning Balance Sheet FQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007 FQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007Assets+ Cash & Near Cash Items 4901 3302 1962 2596 1878 17.4% 13.4% 9.5% 13.7% 13.2%+ Short-Term Investments 1520 1727 968 576 1451 5.4% 7.0% 4.7% 3.0% 10.2%+ Accounts & Notes Receivable 1189 854 835 828 874 4.2% 3.5% 4.0% 4.4% 6.1%+ Inventories 939 712 618 755 665 3.3% 2.9% 3.0% 4.0% 4.7%+ Other current Assets 715 768 464 467 258 2.5% 3.1% 2.2% 2.5% 1.8%Total current Assets 9264 7363 4847 5222 5126 32.9% 29.8% 23.4% 27.5% 35.9%+ LT Invesetments & LT Receivables 4890 5194 3818 3119 2932 17.4% 21.1% 18.4% 16.4% 20.5%+ Net Fixed Assets 10266 8526 8180 7220 5602 36.4% 34.6% 39.4% 38.0% 39.2%+ Other Long-Term Assets 3753 3587 3902 3429 613 13.3% 14.5% 18.8% 18.1% 4.3%Total Long-Term Assets 18909 17307 15900 13768 9147 67.1% 70.2% 76.6% 72.5% 64.1%Total Assets 28173 24670 20747 18990 14273Liabilities & Shareholders Equity + Accounts Payable 938 720 470 958 495 3.3% 2.9% 2.3% 5.0% 3.5% + Short-Term Borrowings 27 25 75 75 21 0.1% 0.1% 0.4% 0.4% 0.1% + Other Short-Term Liabilities 1044 949 975 1025 1739 3.7% 3.8% 4.7% 5.4% 12.2%Total Current Liabilities 2009 1694 1520 2058 2255 7.1% 6.9% 7.3% 10.8% 15.8% + Long-Term Borrowings 2282 2390 1945 1470 1460 8.1% 9.7% 9.4% 7.7% 10.2% + Other Long-Term Liabilities 2191 2119 2264 1986 1716 7.8% 8.6% 10.9% 10.5% 12.0%Total Long-Term Liabilities 4473 4509 4209 3456 3176 15.9% 18.3% 20.3% 18.2% 22.3%Total Liabilities 6482 6203 5729 5514 5431 23.0% 25.1% 27.6% 29.0% 38.1% + Total Preferred Equity 0 0 0 0 0 0.0% 0.0% 0.0% 0.0% 0.0% + Minority Interest 51 51 51 48 44 0.2% 0.2% 0.2% 0.3% 0.3% + Share Capital & APIC 13832 13645 13465 13287 12015 49.1% 55.3% 64.9% 70.0% 84.2% + Retained Earning & Other Equity 7808 4771 1502 141 (4217) 27.7% 19.3% 7.2% 0.7% -29.5%Total Equity 21691 18467 15018 13476 8842 77.0% 74.9% 72.4% 71.0% 61.9%Total Liabilities & Equity 28173 24670 20747 18990 14273
  18. 18. Balance Sheet• $6.4 billion in Cash and ST investments – Current and LT debt of just $2.3 billion.• Free cash flow was positive $269 million in Q3
  19. 19. Corning Cash Flows FQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007 FQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007Cash From Operating Activities+ Net Income 3358 3254 1517 5725 2079+ Depreciation & Amortization 934 828 799 644 606 27.8% 25.4% 52.7% 11.2% 29.1%+ Other Non-Cash Adjustments 280 1261 (990) (3572) (575) 8.3% 38.8% -65.3% -62.4% -27.7%+ Changes in Non-Cash Capital (448) (165) 218 (317) (137) -13.3% -5.1% 14.4% -5.5% -6.6%Cash From Operations 4124 2656 1544 2480 1973 122.8% 81.6% 101.8% 43.3% 94.9%Cash From Investing Activities+ Disposal of Fixed Assets 2 7 32 200 1 0.1% 0.2% 2.1% 3.5% 0.0%+ Capital Expenditures (2139) (697) (1493) (1536) (1171) -63.7% -21.4% -98.4% -26.8% -56.3%+ Increase in Investments 0 0 0 0 0 0.0% 0.0% 0.0% 0.0% 0.0%+ Decrease in Investments 0 0 0 0 0 0.0% 0.0% 0.0% 0.0% 0.0%+ Other Investing Activities (3) (750) (816) 738 377 -0.1% -23.0% -53.8% 12.9% 18.1%Cash From investing Activities (2140) (1440) (2277) (796) (793) -63.7% -44.3% -150.1% -13.9% -38.1%Cash From Financing Activities+ Dividends Paid (315) (313) (312) (314) (79) -9.4% -9.6% -20.6% -5.5% -3.8%+ Change in Short-Term Borrowings (27) (72) (88) (22) (18) -0.8% -2.2% -5.8% -0.4% -0.9%+ Increase in Long-Term Borrowings 34 689 346 0 0 1.0% 21.2% 22.8% 0.0% 0.0%+ Decrease in Long-Term Borrowings (140) (265) (10) 0 (263) -4.2% -8.1% -0.7% 0.0% -12.7%+ Increase in Capital Stocks 98 72 31 122 135 2.9% 2.2% 2.0% 2.1% 6.5%+ Decrease in Capital Stocks 0 0 0 (750) (125) 0.0% 0.0% 0.0% -13.1% -6.0%+ Other Financing Activities (35) 13 132 (2) 69 -1.0% 0.4% 8.7% 0.0% 3.3%Cash from Financing Activities (385) 124 99 (966) (281) -11.5% 3.8% 6.5% -16.9% -13.5%Net Changes in Cash 1599 1340 (634) 718 899 47.6% 41.2% -41.8% 12.5% 43.2%
  20. 20. Corning-Piotroski Breakdown Qualification Score1. Positive Net Income 12. Positive Cash Flow from Operations 13. Increase of Return of Assets 14. Cash Flow from Operations > Net Income 15. Decrease in Long-Term Debt to Assets 16. Increase in Current Ratio 17. Decrease in Shares Outstanding 08. Increase in Gross Margin 19. Increase in Asset Turnover 1Total Score 8/9
  21. 21. Liquidity Ratios Current Ratio Quick Ratio
  22. 22. Activity Ratios Asset Turnover A/R TurnoverInventory Turnover
  23. 23. Leverage Ratios Financial Leverage Debt/Equity Debt/Assets
  24. 24. Profitability Ratios Gross Margin Operating Margin Profit Margin
  25. 25. ROAROEROC
  26. 26. Dupont Analysis
  27. 27. Price/Book Ratio Price MultiplesPrice/Earnings RatioPrice/Sales RatioPrice/ Operating Cash Flow
  28. 28. PEG Ratio
  29. 29. 6 Month Peer Comparison (ASGLY, JNPR)
  30. 30. 5 Year Peer Comparison (ASGLY, JNPR)
  31. 31. 6 Month Index Comparison (ASGLY, JNPR)
  32. 32. 5 Year Index Comparison (ASGLY, JNPR)
  33. 33. Technical Analysis Support at 50 DMA
  34. 34. Recommendation: BUY• Future in LCD sales and telecommunication equipment is bright and Corning - as the market leader of necessary inputs in this field - will substantially benefit.• Dividend yield of 2.06%• Net cash position of $4.1B – 18% of market capitalization• Analysts rate the stock around a "buy" with 14 of the 20 revisions being made upwards.

×