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Corning Presents A Value Buy

Summary

Any positive surprise from Corning could catalyze the stock price upward.

Market presently assumes negative free-cash flow growth rate.

Strong dividend history and strong balance sheet reinforce my long sentiment.

Budding middle class in emerging markets and population growth favor smartphone growth.

About ~(30%) away from their 52-week high and trading at decent ~8 P/E, prime room for upward premium.

Corning (NYSE: GLW) is a 160-year old bedrock of innovation. All the data presented in this article is freely available here or Corning's website under their investor relations tab. Corning represents a solid value buy at this point because: (1) it's trading below their next resistance price level;(2) trading below trailing P/E of their competitors and market broadly; (3) solid acquisitions and low leverage give flexibility on their balance sheet; and (4) Corning is an established business with low risk of insolvency, positive top-and-bottom line growth and reliable dividend.

Corning Is Reliable and Growing

Corning rewards shareholders with reliable dividends and growth opportunities. At its current stock price, I believe Corning presents a value buy for long-term investors. I like their presence and fundamentals. During the second quarter of 2015, their sales were $2.5B and they completed a lucrative acquisition providing them a 10-year supply agreement with Gerresheimer AG's pharmaceutical tubing business. Moreover, they are prime for growth in Asia because of their integration of Samsung Electronics' optical fiber business. In short, Corning is a company of disciplined growth, market innovation and a history of reliable dividends for investors. They are sitting about -30% from their 52-week high and I believe they present a value buy for the long investor or a dollar-cost average strategy.

Value Identified

They are sitting at a P/E (price to earnings) multiple of about 8.30 (on 10/14/2014). For comparison, the average S&P P/E ratio is about 19 and one of GLW's competitors 3M (NYSE:MMM) has a P/E of about 19.45, as of 10/14/2015. However, 3M has a market capitalization almost quadruple of Corning's. In this market environment, where many companies are at peak valuations, a large-cap stock with low P/E presents value to steer funds and capture reliable dividend income. On 9/25/2015, RBC Capital Markets reiterated their outperform rating for GLW and set a price target of $21. Moreover, they have more cash on hand than total debt. They could pay off their total debt (~$4.02B) and still have about $1.45B cash left. Companies with more cash-to-debt present strength when rate hikes and market volatility sit on the horizon. Assuming the market did take a downturn, Corning's fundamentals offer strength to resist any price contraction vs. heavily levered companies that suffer greatly in market downturns. More leverage on balance sheets weakens a company's cash flow position if they can't generate enough capital to pay debt and continue operations. This won't be a problem for Corning because they do not have a lot of debt.

The table below shows the free cash flow growth rate over the past 10 years. If we did a reverse valuation, assuming a -10% FCF growth rate and a discount rate of 7%, we will get a DCF Growth Price about 96% above the current price. I believe these are fairly conservative assumptions.

Free Cash Flow Numbers

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

FCF

386.00M

621.00M

810.00M

207.00M

1.19B

2.83B

757.00M

1.41B

1.77B

3.63B

Growth

-%

+60.88%

+30.43%

(74.744%)

+473.43%

+138.25%

(73.23%)

+85.60%

+25.84%

+105.49%

Corning Declares Quarterly Dividend

Last week, on 10/7/2015, the Board of Directors of Corning declared a quarterly dividend on the company's common stock of $0.12 per share. Corning has consistently distributed a dividend for the past eight years. This suggests they are established and able to continue to distribute its dividend for the foreseeable future. Toward the end of the year...


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