Corning Incorporated (NYSE:GLW) Moves Higher After Raising Guidance

A Double-Tailwind For Corning Incorporated

It’s no secret that the analysts have been woefully behind on their estimates for this year’s earnings. Not only did they cut their targets too much when the pandemic struck, but they have also been slow to increase their estimates in the face of 1) a strong economic rebound and 2) stronger than expected results from most S&P 500 company’s. This situation is one that will fuel a market rally over the next few quarters as the analysts catch up to reality but there is more to this story than the sell-side targets. Companies like Corning Incorporated (NYSE:GLW) have been shy to forecast revenue and earnings leaving them in a position to outperform their own guidance.

Corning’s 4th quarter has only been underway for a month and yet the business is strong. Strong enough for the company to raise guidance and to a range above the consensus. The company says to expect 5% to 8% sequential growth from the 3rd quarter, up from a previously forecast 2% to 3%, with a more robust increase in earnings. Earnings will be juiced by an acceleration of margin expansion, about 10% to 16%, versus the 710 basis point expansion reported in the previous quarter. This puts revenue in the range of $3.15 to $3.42 billion and ahead of the $3.15 billion analyst consensus.

The Analysts Are Warming To Corning

The analysts are generally bullish on Corning but not completely. Of the 9 ratings issued this year, all since July, I might add, only 5 are bullish with 4 neutrals. The consensus target has been creeping higher as well, to near $33, revealing a disconnect between the consensus and what the market is expecting. The high-price target of $39 is held by JP Morgan and implies at least some upside but not much.

In JPMorgan’s view, Corning is benefiting from the economic rebound and, more specifically, its new role as the glass supplier to Apple. Corning beat the consensus targets for 3Q revenue and earnings largely on the back of sales to Apple (NASDAQ:AAPL) which are expected to grow over the coming year. In terms of Corning’s results, the core sales were up 16% QtoQ and 1% YoY driven by a 37% increase in Specialty Products which include the new iPhone screens. JPMorgan is Overweight the stock.

Fresher news is sure to get the analyst’s attention as well. The company just announced its Corning Guardiant Technology, a paint additive, kills bacteria and viruses including COVID-19 within 2 hours. The testing was done in conjunction with the EPA and partner PPG Industries. The product is not yet approved for sale but should come on the market fairly soon.

Corning Incorporated Is On Track For A Dividend Increase

Corning Incorporated is an attractive dividend payer to boot. The company stock yields about 2.30% with shares near $37.50 and there is a high expectation of future increases. The company has been increasing the distribution annually for 10 years and with a high 15% 5-year CAGR. Looking at the numbers, the payout ratio is a little high at 65% but there are some mitigating factors.

The first is the consensus for 2020 EPS, it’s too low. Adjusting the Q4 EPS target to match guidance puts the ratio below 60% and it gets lower next year, about 45%, and the balance sheet is in good shape too. The company has ample cash, a modest about of debt, and free-cash-flow to spare. Looking at this year’s figures, the leverage ratio is high at 16X FCF but that is the result of COVID-related weakness early in the year. Next year’s anticipated leverage ratio is much, much lower.

The Technical Outlook: Corning Incorporated Is Trading At New All-Time Highs

Shares of Corning Incorporated advanced to a new all-time high following the 3Q report and look ready to move higher. The stock is in a clear uptrend with bullish indicators only one technical red flag I see. The indicators are bullish but weakening and diverging from the new high. The caveat is that there are no bearish signals present, in this light sideways action and consolidation will likely result in another buy signal. In the near-term, price action may fall to near $36 and the short-term moving average before moving higher.