Corning Analysis

Here is the promised analysis of Corning (GLW). I think at $14 or so it is a good buy.

Company: Corning is a glass maker company. It makes display glass for LCD TVs, smartphones, tablets, fiber optic cables, and other random items such as some sort of car catalytic converter emissions item. Corning owns half of joint ventures with Dow (producing polysilicon glass for semiconductors and solar panels) and Samsung (display glass).

Industry: Specialty glass makers. Corning and Asahi (Japan), Nippon Electric Glass is a smaller third players. There are many fringe glass makers in different segments.

You might know it for: The video "A Day Made of Glass" on YouTube. Cool video.

Margins: Gross margin 43%, Net Profit Margin about 20%

Why can't other people do what Corning does: It requires R&D, engineering and high capital expenses to get going. It takes a while to build these big blower furnaces to make the glass, and the technology is always changing.

Market Cap: $21 billion

Current Balance Sheet:
Cash and Short Term Investments: $6 b
Inventory, LT Investments: $5.5 b
PPE and Other Tangible Assets: $12 b
-----
Total Tangible Assets: $23 b

Accounts Payable: $1 b
LT Debt, Pension, Other Liabilities: $5.5 b
-----
Total Liabilities $6.5 b

FY 2011 Net Income: $2.8 billion


Factors that affect Net Income in the future:

75% LCD
Demand for LCD TVs: Will probably remain flat
Supply chain and utilization rate for LCD glass: Should decrease demand slightly
Pricing for LCD glass: Should go down
Profits should marginally decrease

5% Dow Corning
Profits should go down as the solar craze subsides

5% Fiber Optic Cable
Profits should incrementally rise

5% Gorilla Glass (Specialty glass, tablet glass)
Profits - Faster rise. Gorilla glass 2, thinner and just as strong.

5% Environmental
Profits - Slight rise

4% Life Sciences (Lab Glass)
Profits - slight rise

1% OLED
A new type of glass for a better, more expensive flat-screen TV. Not sure how to model this. Should not affect profitability in the near future, but perhaps by 2015 this will be a big market for TVs

Amortization:  CapEx has been higher recently, so Net Income will come down a bit due to amortization.
Strength of the Yen to Dollar exchange: A stronger yen helps Corning's profits. There was a strong yen in 2009-2011 which added a significant amount to the bottom line. The future is uncertain.



Future income will probably be lower than $2.8 billion in 2011. There are some pricing pressures that will cut into margins. Revenue will probably improve slightly. A floor for income is about $1.5 billion. If the Gorilla Glass or other segments can outperform, you could see it go up from there.

Converting Net Income to Cash Flow:
Capital Expenditures: These were up around $2 billion in 2011. Higher than in the past, so you are going to see a higher amortization in the future. 2012 is planned just below that. It would be nice to see Corning reduce this number in 2013.

Converting Cash Flow to Share Value:
Shares outstanding : Pretty constant at 1.56-1.58 billion over the last two years. Corning just implemented a buyback program which should reduce shares just below 1.5 billion outstanding. Corning also pays regular dividends to shareholders. No planned spinoffs and Corning is not a rumored acquisition target.

Bottom Line:
Paying about $20 billion for maybe $8 billion in realizable asset value plus $1.5 billion per year. Good deal in my opinion.