Corning (GLW) at Inflection Point Before Cyclical Upturn
Corning (GLW): On Monday May 23rd, traders actively bought August 17, 18 & 19 calls with nearly 10,000 of the 19 strikes added. These were quite possibly linked to Apple’s (AAPL) earlier report of higher than expected iPhone 7 production.
Apple iPhone use – Corning makes Project Phire glass, which, for real-life situations performs just as well, sometimes better, than Apple’s Sapphire glass. It is also far less expensive to manufacture. If Apple goes with Corning’s Project Phire for their phones, it would add substantially to revenues.
Gorilla Glass: not just for smartphones – Corning is also 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 panel market.
Display technologies make up 34% of Corning’s net sales – 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, consumers will keep pushing demand higher, benefiting Corning’s panel sales.
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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..”. Susquehanna research note from March 28 mentions that checks in Korea and Taiwan show TV demand is exceeding prior expectations.
Corning reported 1Q earnings in late April that showed expected drops in panel prices. However, that was the smallest sequential first-quarter decline in five years and company CFO expects the remainder of the year to show ”significant improvement from first-quarter results, and that second-quarter results will reflect the strong underlying trends in [our] businesses”.
The latest reports of Taiwanese glass panel production have shown quarterly improvement of shipping numbers. Seasonality for televisions is September to November when new models come out, and for the US market, World Series and NFL season start. Increasing programming from Netflix and 4k broadcast of sports events from most cable providers help entice the transition to the new 4k/SUHD sets.
Given recent reports, data, future outlook and recovering price, we believe that Corning (GLW) is at a possible inflection point.