Street Patrol
Recent articles:
• Apple just delaying the inevitable?, 4/20/2006
• Bet on Motorola's brand, 4/19/2006
• Just say no to this drug stock, 4/12/2006
More...
| | Street Patrol
Buy this star of the big screen
Corning's stock got dinged by suggestions of an LCD screen slowdown. But the glitch -- and the low stock price -- appear temporary.
By Robert Walberg
Going into last nights earnings report, Cornings (GLW, news, msgs) stock was up 40.4% this year and an eye-popping 119% over the past 52-weeks. Strong demand for the companys liquid crystal display, or LCD, television screens drove the stocks big advance.
So when the company suggested yesterday that its Display Technology unit was apt to experience a modest slowing in demand, traders headed for the exits.
It didnt matter that the company reported a 20% jump in total sales during the first quarter or that net income rose by nearly 3%. All the market heard was that growth in the companys bread-and-butter business was going to start slowing down. Thats too bad because the news out of Corning was good, bordering on great.
Hitting on most cylinders
Corning has four primary units -- Display Technologies, Telecommunications, Environmental Technologies and Life Sciences. Led by a 71% year-over-year jump in revenues in the Display unit, each segment enjoyed solid growth.
Corning expects growth in Life Sciences and Telecommunications to experience higher quarterly growth rates in the second quarter than they did in the first. Combined, these two units constitute roughly 39% of total revenues. Growth in the latter is being driven by increased demand for fiber to the home -- a trend that only looks to get more bullish in the quarters and years to come.
The Life Sciences business is growing on the back of a new throughput drug discovery screening system called the Epic. According to the company, the revolutionary system helps drug companies test the efficacy of new drugs and therapies faster and more accurately than current methods. Management recently noted that Epic could generate hundreds of millions of dollars in revenues for the burgeoning unit. Last quarter, the group notched a 14% sequential jump in sales.
On the downside, management noted that a sluggish U.S. auto market could dampen the second quarter performance of the Environmental Technologies unit. Nevertheless, the long-term prospects for the group remain promising given tougher diesel emissions standards down the road. Also, any rebound in the US car-and-truck market would result in very favorable comparisons given the recent softness. It should also be noted that the Environmental Technologies division accounts for a relatively modest 15% of total revenues.
The big-screen big picture
So far, so good. But no story about Corning is complete without an understanding of its LCD business. Corning is the worlds largest producer of the glass used in LCD television sets. In fact, it controls better than a 50% share of the market. Now if youve shopped in a Best Buy (BBY, news, msgs) or a Circuit City (CC, news, msgs) lately you know that demand for these large screen TVs is sky high. Management at Corning reiterated that it sees demand for the full year growing by 40% to 50%.
More importantly, it sees Cornings share growing faster than the industry.
If that werent positive enough, the company also indicated that price discounts in the current quarter would probably be smaller than those experienced last quarter.
So whats the problem? Management said the strong demand for LCD last quarter contributed to supply-channel inventory build-up. As such, sequential growth is likely to slow.
The company also cited a lighting strike at one of its plants for disrupting volume and for higher-than-expected repair costs. Both are short-term glitches that can be easily fixed. Despite these issues, management still expects year-over-year volume growth in the quarter to exceed 60%.
Corning is a company hitting on all cylinders, with products in high demand. The problems the company is experiencing in the Display Technologies unit and, to a lesser degree, in the Environmental Technologies units are temporary. Considering the companys track record of success over the past several years, I think management deserves the benefit of the doubt from the Street when it comes to addressing these issues.
Any news-related retreat in the stock should be treated by patient long-term investors as a buying opportunity. Assuming Corning merely hits its revenue and earnings targets this year and next, the stock should have no trouble climbing above $30.
At the time of publication, Robert Walberg did not own or control shares of companies mentioned in this column.
| |
|
|
|
|
MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.
|
