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Corning Incorporated (GLW) Still Attractive Despite Revenue Miss

Recently added to the “Our Picks” section, I hypothesized that Corning Incorporated (NYSE:GLW) would continue its growth well into the future, and it earned a BUY rating due to “the combination of myriad innovations and the low valuation — at a forward P/E Ratio under 14 the market is certainly understating Corning’s growth potential.” That said, Corning shares fell after releasing Q1 Earnings, largely due to the company missing revenue forecasts on the account of a weak Euro.


As a result of Corning repurchasing $500 million of its stock and strengthening its gross margin 20 basis points year-over-year to 41%, the company beat earnings-per-share estimates. Overall the quarter was strong for Corning, especially for Gorilla Glass sales and the company’s Optical Communications unit; despite forex headwinds and lackluster results in Advanced Optics and Life Sciences, I remain bullish.


Previously I broke down each of Corning’s five sectors — Display Technologies, Environmental Technologies, Life Sciences, Optical Communications, and Specialty Materials — and following this quarter’s update it is worth reanalyzing each individually.


Comprised mainly of LCD glass sales, Display Technology sales reported in at $1 billion, a figure that comes in marginally higher than last year’s first quarter. More importantly, margins within the business increased to help offset slumping glass prices. Transitioning into next quarter Corning believes that Display Sales will stay firm, as stated by CFO James B. Flaws “We think LCD television units will grow mid single digits with area growth higher, driven by increasing screen sizes. We believe the trend of consumers buying larger televisions will continue.”


This impressive performance came as no surprise as growth was forecasted for the unit in our previous Corning article, “with televisions becoming larger and larger (and, of course, thinner) Corning is well-positioned to ride the trend to the bank, as evidenced by last quarter’s performance. WTI futures remained under $53 for essentially all of Q1, thus I expect LCD glass sales to exceed expectations yet again due to continued strong discretionary spending.” Tailwinds of job growth and continuously depressed oil prices can offset the fact that Q2 is often a weaker quarter for consumer electronics spending.


For Q1 2015 the Life Sciences story was far less encouraging, and sales are likely to continue to decline throughout the year, as year-over-year sales fell 6%, a result of Dow Corning suffering from slow polysilicon sales and the weak Euro. Increasing 3% year-over-year, environmental sales, driven by automotive, were again a highlight. I expect both of these trends to continue throughout the year, through aforementioned drivers: “While the positive changes Corning contributes to our environment are wonderful to say the least, the growth potential for the business is also encouraging as we take more initiatives to move towards a greener planet.”


The most abundant areas of growth for Corning thus far again performed well, with Optical Communications beating company forecasts by registering an 18% year-over-year sales increase; guidance for the sector was set at mid-teens sales growth, with no sign of growth slowing anytime soon.


As expected, Gorilla Glass sales propelled Specialty Materials to a year-over-year sales increase of 4% — the Gorilla continues to dominate the phone glass market. Also noteworthy was that Gorilla Glass margins increased, helping increase sector margins as well. Gorilla  Glass will continue its dominance going forward, Corning is guiding for a double digit volume increase throughout the year.


One recurring issue throughout the call was the weaker Euro, which is hardly an excuse since all companies must learn to adapt to currency environments. Still, Corning had revenues negatively impacted large enough to where revenue estimates were missed, “Now, one other note on FX, for those who are looking at our comparison against sales consensus, FX was the only reason that we missed sales consensus.” While perhaps the company was blind sighted by the lower Euro last quarter, they must adapt going forward; it appears they have. With a new hedging plan in place Corning should be able to continue growth on a more constant-currency basis, “we hedged against further Euro weakness in 2015 and 2016. With these hedges, we’ve protected the majority of our estimated Euro NPAT exposure for Environmental/Life Sciences for this year and next.”



Growth remains a goal and an accomplishment for Corning since Optical Communications and Specialty Materials continue to post strong numbers. The elephant (or Gorilla) in the room this quarter was the negative impact of the weak Euro on results, but the company hedging against further weakness demonstrates management’s ability to recognize the issue and adapt accordingly. Near-term stock weakness is hardly a reflection of the company’s underlying growth. Ultimately, Corning remains in our picks.

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