Corning (GLW, Financial) delivered a strong outlook for the third quarter of 2014 as it expects considerable improvement in sales and earnings. Corning is benefiting this year from a couple of key trends such as continuation of the positive momentum in its display technology, adoption of its precision materials to better execute its synergy plans, encouraging sales and profits from other segments and solid cash returns to its shareholders.
Why Corning should continue improving
Corning looks to carry forward the momentum in its display driver as it anticipates its LCD retail and glass market to rise in mid-single digit in the third quarter due to increasing demand from one of its customers in Korea. Also, Corning looks excited due to the slight correction in the prices that should further help the company posting better margin with accelerated volumes for the quarter. Corning is also seeing an increase of about 3% in the average screen size in 2015 as customers are now opting for a large screen television with ease.
Hence, Corning is planning to shortly launch the Ultra-high definition large screen television for its wide-spread markets principally for the 30-inch family of television. Moreover, the company is pleased with the overall glass market as its inventory level remains quite vigorous with supply and demand curve, resting at the equilibrium point for the glass market.
Meanwhile its optical communication division is performing fairly well as Corning is experiencing outstanding volume in cost performance. Corning expects its optical communication sales to surge in the mid-single digit percentage as it is observing strong demand for its fiber-to-home solutions in the North America and EMEA regions. Corning also expects its optical communication segment to deliver sales growth of high single digit for the full years due to growing positive momentum of its fiber-to-home data center, and wireless optical connectivity.
Gaining traction
Corning is additionally seeing positive market traction for its Specialty Material due to incredible demand for its gorilla glasses in the market. The company anticipates sales growth of about 10% for the Specialty Material in the third-quarter as it realizes higher volumes of its gorilla glasses due to new models launches. Moreover, the company relies on the LCD glasses such as glass ceramics and fluoride crystals along with gorilla glass business to offset the seasonal decline in the other division of its units.
Moreover, Corning forecasts its sales for the environmental technology to rise approximately 20% to 25% during the third quarter as it continues to perceive higher demand for its heavy-duty diesel emission control products. This remarkable growth will certainly help the company to offset sales at the weaker division such as tablet market that is now expected to grow in the range of 8% to 10% only. The company had estimated its tablet division to grow in high teens at the beginning of the year.
In addition, the company remains well on track with respect to its synergy plans. GLW has recently made a successful acquisition CPM and had acquired SEPin the first quarter of 2014. Corning has also effectively streamlined their activities with its undertakings that should now generate positive synergy for the company going forward.
Moreover, it is expected to create synergy of about $30 millions in the third-quarter and approximately $90 million is anticipated for the full year. Looking forward, the company expects to realize nearly $170 million in 2016 and around $270 million in 2017, which will significantly improve its margins in future.
Apart from these, the company is continuously engaged in investing in R&D that will augment its growth in the coming years. Corning is also busy in producing high-performance display glasses that should enhance consumer experiences for their devices. Additionally, Corning has productive pipeline for its products in wireless communications that are under-developments and Corning is planning to launch an improved generation of its market leading gorilla glass later this year should drive its overall growth this year and in the coming years.
Conclusion
Corning is currently trading at the forward P/E multiple of 12.83 against the trailing P/E multiple of 16.98 that suggest tremendous growth for the stock in the future. Moreover, its PEG ratio stands at 1.00 for the next five years that further supplement its growth prospects and investors can indeed pick the stock as it has a lot of room to grow in the coming years. Also, Its performance for the last twelve months have been remarkable as it has profit and operating profit yields of 14.77% and 18.42% respectively.
Corning has operating cash flow of $4.26 billion and free cash flow of $840.00 million that can effectively cover its total outstanding debt of $3.70 billion. In addition, the analysts as a whole as estimated CAGR of 14.20% for the next five years reflects better choice for investors to include the stock in their portfolio that provides both short as well as long term growth.
