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Corning Inc. Analysis – August 2015 Update $GLW

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 the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  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 stock analysis showing a specific look at how Corning Inc. (GLW) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Corning Incorporated (Corning) is engaged in the manufacture of specialty glass and ceramics. The Company creates and makes keystone components that enable systems for consumer electronics, mobile emissions control, optical communications and life sciences. Corning operates in five segments: Display Technologies, which manufactures glass substrates; Optical Communications, which is engaged in providing optical solutions; Environmental Technologies, which manufactures ceramic substrates and filter products; Specialty Materials, which manufactures products that provide more than 150 material formulations for glass, glass ceramics and fluoride crystals, and Life Sciences segment, which is a developer, manufacturer and supplier of scientific laboratory products. The Company manufactures and processes products at approximately 90 plants in 17 countries.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of GLW – August 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

 

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Fail
6. Moderate PEmg Ratio PEmg < 20 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg 1.44
MG Growth Estimate -4.11%
MG Value $0.70
Opinion Overvalued
MG Value based on 3% Growth $20.82
MG Value based on 0% Growth $12.21
Market Implied Growth Rate 1.93%
Current Price $17.75
% of Intrinsic Value 2527.02%

Corning Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the inconsistent dividend record, and the insufficient earnings growth over the last ten years.  The Enterprising Investor is only initially concerned with the lack of earnings growth over the last five years.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $1.98 in 2011 to an estimated $1.44 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 1.93% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the 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.

Stage 3: Information for Further Research

GLW charts August 2015

Net Current Asset Value (NCAV) $0.70
PEmg 12.36
Current Ratio 4.88
PB Ratio 1.16
Dividend Yield 2.48%
Number of Consecutive Years of Dividend Growth 5

 

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Most Recent Balance Sheet Figures

Total Current Assets $9,868,000,000
Total Current Liabilities $2,022,000,000
Long-Term Debt $3,910,000,000
Total Assets $29,888,000,000
Intangible Assets $2,043,000,000
Total Liabilities $8,905,000,000
Shares Outstanding (Diluted Average) 1,371,000,000

Earnings Per Share History

Next Fiscal Year Estimate $1.33
Dec14 $1.73
Dec13 $1.34
Dec12 $1.09
Dec11 $1.77
Dec10 $2.25
Dec09 $1.28
Dec08 $3.32
Dec07 $1.34
Dec06 $1.16
Dec05 $0.38
Dec04 -$1.61
Dec03 -$0.22
Dec02 -$1.39
Dec01 -$5.89
Dec00 $0.49
Dec99 $0.66
Dec98 $0.56
Dec97 $0.62
Dec96 $0.25
Dec95 -$0.08

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.44
Dec14 $1.54
Dec13 $1.48
Dec12 $1.68
Dec11 $1.98
Dec10 $2.01
Dec09 $1.76
Dec08 $1.64
Dec07 $0.60
Dec06 $0.04
Dec05 -$0.92
Dec04 -$1.63
Dec03 -$1.51
Dec02 -$1.81
Dec01 -$1.58
Dec00 $0.55
Dec99 $0.52

Recommended Reading:

Other ModernGraham posts about the company

30 Companies in the Spotlight This Week – 5/23/15
Corning Inc. Quarterly Valuation – May 2015 $GLW
34 Companies in the Spotlight This Week – 2/7/15
Corning Inc. Quarterly Valuation – February 2015 $GLW
28 Companies in the Spotlight This Week – 11/1/14

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.

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