One of Wall Street's biggest winners of the day is Corning, a communication equipment company whose shares have climbed 4.4% to a price of $51.73 -- near its average analyst target price of $53.35.
The average analyst rating for the stock is buy. GLW outperformed the S&P 500 index by 3.0% during today's afternoon session, and by 39.0% over the last year with a return of 62.9%.
Corning Incorporated engages in the display technologies, optical communications, environmental technologies, specialty materials, and life sciences businesses in the United States and internationally. The company is part of the industrials sector, which is considered cyclical. This means that sales revenues, and to some extent share prices, tend to increase during economic booms and then fall back to earth during busts. However, industrial companies can dampen this cyclical effect if they are invovled in multiple industries.
Corning's trailing 12 month P/E ratio is 272.2, based on its trailing EPS of $0.19. The company has a forward P/E ratio of 22.4 according to its forward EPS of $2.31 -- which is an estimate of what its earnings will look like in the next quarter.
As of the third quarter of 2024, the average Price to Earnings (P/E) ratio for US industrials companies is 25.42, and the S&P 500 has an average of 29.3. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
To gauge the health of Corning's underlying business, let's look at gross profit margins, which are the company's revenue minus the cost of goods only. Analyzing gross profit margins gives us a good picture of the company's pure profit potential and pricing power in its market, unclouded by other factors. As such, it can provide insights into the company's competitive advantages -- or lack thereof.
GLW's gross profit margins have averaged 34.2% over the last four years. While not particularly impressive, this level of margin at least indicates that the basic business model of the company is consistently profitable. These margins are declining based on their four year average gross profit growth rate of -3.7%.
Corning's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to the company's operating cash flows minus its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 2,005,000 | 1,390,000 | 615,000 | -39.17 |
| 2022 | 2,615,000 | 1,604,000 | 1,011,000 | -43.04 |
| 2021 | 3,412,000 | 1,637,000 | 1,775,000 | 121.05 |
| 2020 | 2,180,000 | 1,377,000 | 803,000 | 1415.09 |
| 2019 | 2,031,000 | 1,978,000 | 53,000 | -92.17 |
| 2018 | 2,919,000 | 2,242,000 | 677,000 |
- Average free cash flow: $822.33 Million
- Average free cash flown growth rate: -1.9 %
- Coefficient of variability (lower numbers indicating more stability): 0.0 %
With its positive cash flow, the company can not only re-invest in its business, it can offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in GLW have received an annualized dividend yield of 2.3% on their capital.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts.
Corning's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 3, so the company's assets may be overvalued compared to the average P/B ratio of the Industrials sector, which stands at 3.2 as of the third quarter of 2024.
Corning is by most measures overvalued because it has a higher P/E ratio than its sector average, an average P/B ratio, and positive cash flows with a flat trend. The stock has poor growth indicators because it has a an inflated PEG ratio and weak operating margins with a negative growth trend. We hope you enjoyed this overview of GLW's fundamentals.
