Corning (GLW): 4k UHD – The Next Step In Television Evolution
It has been over a decade since 1080p HDTV flat screen TVs became mainstream, replacing CRTs. Apart from improvements within the existing technology, progress had been stagnant until the introduction of 4k sets with 2160p resolution. As prices of these new sets continue to fall and more content becomes available (i.e. Netflix programming), consumers will keep pushing demand higher, benefiting Corning’s panel sales.
Display technologies make up 34% of Corning’s net sales – In a research note issued on April 12, Goldman Sachs upgraded Corning from Neutral to Buy rating with a price target of $26.00. On April 8, Deutsche Bank reissued their Buy rating to their clients and investors.
Goldman’s analyst states that they “..believe the TV supply chain is approaching a cyclical bottom, which is historically a leading indicator of stock performance and therefore a time to own the stock..”. Their expectation is that the LCD cycle should bottom in 1Q16, which GLW is set to report on April 26.
Susquehanna research note from March 28 mentions that checks in Korea and Taiwan show TV demand is exceeding prior expectations. Also notable is that panel price decline is decelerating compared to 3/4Q15, supporting Goldman’s view. Furthermore, in Corning’s 2015 annual report, the CEO states that LCD glass price declines were the smallest they have been in five years.
Gorilla Glass: not just for your smartphone – Corning is developing their specialized toughened glass for more applications, specifically automobile use. The market size for automotive glass industry is projected to grow at a CAGR of 5.74% to reach $65.82 Billion by 2020. Presently, this segment of the business represents about 12% of total net sales but the 2015 annual report sees a potential glass market larger in square feet than the current LCD market.
Given all the data and future outlook, we believe that GLW is at a possible inflection point. A confirmation via reaffirmed or improved 2H16 outlook could spur share prices higher.