Construction Stocks

Corning Inc Valuation – May 2016 $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 Companies Benjamin Graham Would Invest In Today – March 2016.  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 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 over 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 Display Technologies segment develops, manufactures and supplies glass substrates using a fusion manufacturing process. It manufactures and processes products at approximately 90 plants in approximately 20 countries. Corning offers its products under the trademarks, including Corning, Celcor, ClearCurve, DuraTrap, Eagle XG, Epic, Gorilla, HPFS, Pyrex, Steuben, Falcon, SMF-28e and Willow.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of GLW – May 2016

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 $20,935,833,812 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.80 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -32.83% Fail
6. Moderate PEmg Ratio PEmg < 20 15.15 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.20 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 2.80 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.85 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

GLW value chart May 2016

EPSmg $1.29
MG Growth Estimate -3.62%
MG Value $1.63
Opinion Overvalued
MG Grade B+
MG Value based on 3% Growth $18.68
MG Value based on 0% Growth $10.95
Market Implied Growth Rate 3.32%
Current Price $19.51
% of Intrinsic Value 1197.32%

Corning Incorporated qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the insufficient earnings growth over the last ten years. The Enterprising Investor is only concerned with the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.7 in 2012 to an estimated $1.29 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 3.32% 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.

Corning Incorporated performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

GLW charts May 2016

Net Current Asset Value (NCAV) -$2.58
Graham Number $19.95
PEmg 15.15
Current Ratio 2.80
PB Ratio 1.20
Current Dividend $0.50
Dividend Yield 2.54%
Number of Consecutive Years of Dividend Growth 6

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $7,178,000,000
Total Current Liabilities $2,564,000,000
Long-term Debt $3,910,000,000
Total Assets $27,945,000,000
Intangible Assets $2,102,000,000
Total Liabilities $10,027,000,000
Shares Outstanding (Diluted Average) 1,103,000,000

Earnings Per Share History

Next Fiscal Year Estimate $1.26
12/1/2015 $1.00
12/1/2014 $1.73
12/1/2013 $1.34
12/1/2012 $1.15
12/1/2011 $1.77
12/1/2010 $2.25
12/1/2009 $1.28
12/1/2008 $3.32
12/1/2007 $1.34
12/1/2006 $1.16
12/1/2005 $0.38
12/1/2004 -$1.56
12/1/2003 -$0.18
12/1/2002 -$1.39
12/1/2001 -$5.89
12/1/2000 $0.48
12/1/1999 $0.65
12/1/1998 $0.56
12/1/1997 $0.62
12/1/1996 $0.25

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.29
12/1/2015 $1.33
12/1/2014 $1.55
12/1/2013 $1.49
12/1/2012 $1.70
12/1/2011 $1.98
12/1/2010 $2.01
12/1/2009 $1.76
12/1/2008 $1.64
12/1/2007 $0.61
12/1/2006 $0.06
12/1/2005 -$0.90
12/1/2004 -$1.60
12/1/2003 -$1.50
12/1/2002 -$1.81
12/1/2001 -$1.59
12/1/2000 $0.54

Recommended Reading:

Other ModernGraham posts about the company

Corning Inc Valuation – November 2015 Update $GLW
Corning Inc. Analysis – August 2015 Update $GLW
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

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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.  See my current holdings here.  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.  Please be sure to review our detailed disclaimer.

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