Is It Time to Buy Corning Incorporated Stock?

Weak Gorilla Glass sales have caused Corning stock to pull back in recent months. Credit: Corning,

When Corning Incorporated (NYSE: GLW  ) last reported earnings in late July, investors were disappointed when sales from its Specialty Materials segment came in relatively flat over the same year-ago period. Corning management blamed weak Gorilla Glass sales due to "lower-than-expected retail demand for smartphones and tablets, and lower-than-expected sales for planned new models." In addition, investors feared continued weakness in this promising business. As a result, Corning shares have fallen around 15% since then.

But that begs the question: With Corning's next quarterly report coming up next week, is now the time to buy Corning stock? For a number of different reasons, I think the answer is yes.

Management thinks it's cheap
First, even after repurchasing 9.3 million shares last quarter for $200 million, Corning still had around $400 million remaining under its share repurchase program. Most importantly, management insisted they intend to utilize the remainder of that balance to complete the program by the end of 2014.

Given Corning's recent weakness, I wouldn't be the least bit surprised if they did so in Q3. Shares of Corning don't look terribly expensive at around 20.5 and 0.95 times trailing 12-month earnings and sales, respectively. But looking forward, they're much more attractive at around 11.7 times next year's earnings estimates. And even if those estimates fall, patient investors can take solace knowing they're collecting Corning's 2.3% dividend while they wait.

The Cupertino effect
When Apple (NASDAQ: AAPL  ) unveiled its new iPhone 6 last month, it described its "cover glass" as an "ion-strengthened thing of beauty" -- an almost certain reference that Apple has chosen to stick with Corning's Gorilla Glass as its protective cover of choice. This meant Apple definitively chose not to replace Gorilla Glass with sapphire in the iPhone 6. Apple hasn't confirmed exactly why that was the case, but the most prominent reports state it was a last-minute decision made due to a combination of low finished sapphire display yields, as well as high rates of cracking during drop tests for the otherwise scratch-resistant material.

I already suggested prior to the iPhone 6 launch that if Apple were to ditch Gorilla Glass for sapphire, Corning would only stand to lose less than 3% of its total revenue stream. It's also worth noting that management pointed out last quarter that tablets -- not smartphones -- are the primary driver of Gorilla Glass growth. But at the very least -- and keeping in mind Corning has already confirmed plans to launch a new enhanced version of Gorilla Glass later this year -- Apple's decision to stick with Gorilla Glass could go a long way toward preventing other smart-device makers from eventually following suit.

A corning scientist examines a piece of LCD glass. Credit: Corning.

Larger TVs, slower LCD glass price declines
Next, Corning also told investors that, not only are LCD glass price declines expected to continue moderating in the third quarter, but also that consumers are buying larger TVs at faster rates than they previously expected. As a result, Corning significantly raised its internal 2014 forecast for screen sizes larger than 30 inches. It expects average screen sizes to increase 3% through 2015, and sees "robust" growth beyond that as larger ultra-HD sets continue to increase their market penetration.

This bodes particularly well for Corning, whose Display Technologies segment already comprised a whopping 43% of overall sales last quarter.

Acquisition synergies
Finally, earlier this year, Corning announced it had finally completed its acquisition of Samsung Corning Precision Materials, which was formerly an unconsolidated equity venture with Samsung Display, and has since been renamed Corning Precision Materials. As of last quarter, Corning said that, because the integration of CPM was "proceeding very well," it was on track to achieve $30 million in synergies in Q3, and $90 million for the full year.

Better yet, Corning stated those synergies should increase to $170 million for 2016, before ultimately achieving a $210 million run rate by 2017. Over the long term, you can bet Corning will put that extra cash to good use, whether it boosts research and development spending, or simply returns even more capital to shareholders through dividends and share repurchases.

This is exactly the kind of long-term mentality that has helped Corning survive, thrive, and consistently reward shareholders throughout the years. In the end, whether Corning pulls back after next week's report remains to be seen; but for patient, long-term shareholders, Corning stock is a solid buy.

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