Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing 5 Low PEmg Companies for the Defensive Investor. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Corning Inc. (GLW) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Corning Incorporated (Corning) is a global, technology-based corporation. The Company operates in five segments: Display Technologies, Telecommunications, Environmental Technologies, Specialty Materials and Life Sciences. During the year ended December 31, 2011, Corning launched Corning Lotus Glass, an environmentally friendly, display glass developed to enable technologies, including organic light-emitting diode (OLED) displays and next generation liquid crystal displays (LCD). Corning Lotus Glass helps support the demanding manufacturing processes of both OLED and liquid crystal displays for portable devices, such as smart phones, tablets, and notebook computers. In March 2011, the Company acquired all outstanding shares from the shareholders of MobileAccess. In December 2011, it acquired Mediatech, Inc. In May 2013, the Company acquired Bargoa SA. Effective January 15, 2014, Corning Inc acquired the remaining 50.6% interest in Samsung Corning Precision Materials Co Ltd.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
- Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
- Dividend Record – has paid a dividend for at least 10 straight years – FAIL
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
- Moderate PEmg ratio – PEmg is less than 20 – PASS
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – FAIL
Valuation Summary
Key Data:
| Recent Price | $20.74 |
| MG Value | $5.89 |
| MG Opinion | Overvalued |
| Value Based on 3% Growth | $21.64 |
| Value Based on 0% Growth | $12.69 |
| Market Implied Growth Rate | 2.70% |
| Net Current Asset Value (NCAV) | $1.13 |
| PEmg | 13.89 |
| Current Ratio | 5.09 |
| PB Ratio | 1.37 |
Balance Sheet – 12/31/2013
| Current Assets | $8,891,000,000 |
| Current Liabilities | $1,746,000,000 |
| Total Debt | $3,272,000,000 |
| Total Assets | $28,478,000,000 |
| Intangible Assets | $1,542,000,000 |
| Total Liabilities | $7,316,000,000 |
| Outstanding Shares | 1,399,000,000 |
Earnings Per Share
| 2013 | $1.34 |
| 2012 | $1.15 |
| 2011 | $1.77 |
| 2010 | $2.25 |
| 2009 | $1.28 |
| 2008 | $3.32 |
| 2007 | $1.34 |
| 2006 | $1.16 |
| 2005 | $0.38 |
| 2004 | -$1.57 |
Earnings Per Share – ModernGraham
| 2013 | $1.49 |
| 2012 | $1.70 |
| 2011 | $1.98 |
| 2010 | $2.01 |
| 2009 | $1.76 |
| 2008 | $1.64 |
Dividend History
GLW Dividend data by YCharts
Conclusion:
Corning Inc. is not suitable for Defensive Investors but is suitable for Enterprising Investors.  The Defensive Investor is concerned with the lack of earnings stability or growth over the last ten years, and the short dividend history.  The Enterprising Investor’s only concern is the lack of earnings growth over the last five years.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities through a review of 3M Company (MMM) and Intel Corporation (INTC).  From a valuation side of things, the company appears to be overvalued after seeing a drop in EPSmg (normalized earnings) from $1.76 in 2009 to $1.49 for 2013.  This demonstrated lack of growth does not support the market’s implied estimate of 2.7% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls below the market price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Corning Inc. (GLW)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!
Disclaimer: Â The author did not hold a position in Corning Inc. (GLW) or any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.
Logo taken from wikipedia; this article is not affiliated with the company in any manner.
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