Agreements With AT&T And Lumen Will Strengthen Future Optical Expansion

Key Takeaways

• Corning's growth strategy includes significant expansions in optical communications, automotive glass, and environmental technologies, expected to drive substantial revenue increases.
  
• Operational improvements, including stabilized display technologies income and expanded margins, are set to enhance Corning’s profitability and earnings profile.
  
• Corning's profitability risks include currency exposure, government dependencies, innovation challenges, market cycle impacts, and ambitious growth plan hurdles.

Catalysts

Engages in the display technologies, optical communications, environmental technologies, specialty materials, and life sciences businesses in the United States and internationally.

• Corning's Springboard plan anticipates significant growth in sales, with potential to increase annualized sales by $8 billion by the end of 2028, and achieve $5 billion by the end of 2026. This expected growth will likely impact revenue positively.
  
• The Optical Communications segment is expected to sustain growth, driven by strong adoption of AI-related connectivity solutions and agreements with major carriers like AT&T and Lumen, benefiting from both cyclical and secular trends. This could boost revenue and operating margins.
  
• Corning’s Display Technologies is focusing on maintaining stable net income by implementing price increases to offset the weaker yen. This is expected to stabilize and potentially improve net margins.
  
• The company plans to nearly triple sales in the automotive glass business by 2026 and anticipates growth in Environmental Technologies through the adoption of gas particulate filters, which should drive revenue growth.
  
• Corning continues to improve its return profile, as demonstrated by expanding gross and operating margins, which are expected to reach an operating margin of 20% by the end of 2026. This improvement signifies an increase in profitability and earnings.

Corning Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Corning's revenue will grow by 12.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.2% today to 10.7% in 3 years time.
• Analysts expect earnings to reach $1.9 billion (and earnings per share of $2.34) by about December 2027, up from $156.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.3 billion in earnings, and the most bearish expecting $950 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.1x on those 2027 earnings, down from 262.1x today. This future PE is greater than the current PE for the US Electronic industry at 26.0x.
• Analysts expect the number of shares outstanding to decline by 2.03% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.56%, as per the Simply Wall St company report.

Corning Future Earnings Per Share Growth

Risks

• Corning's reliance on the currency exchange rate of the Japanese yen could pose a risk to maintaining stable profitability in its Display Technologies segment, potentially impacting net income if hedges do not perform as expected.
  
• The BEAD program-driven growth in the Optical Communications segment is contingent on government program timelines, which add uncertainty to revenue realization timelines.
  
• Execution and adoption risks associated with innovations in generative AI products could affect Optical Communications segment growth, posing risks to the projected 25% compound annual growth rate and future revenue forecasts.
  
• The potential continued down cycle in the heavy-duty truck market in North America could dampen revenue growth in the Environmental Technologies segment.
  
• Corning's ambitious $8 billion non-risk-adjusted sales growth plan may face challenges if any operational milestones or market recoveries assumed in the Springboard plan do not materialize, impacting overall sales and operating margin targets.

Valuation

• The analysts have a consensus price target of $52.92 for Corning based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $60.0, and the most bearish reporting a price target of just $37.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $17.7 billion, earnings will come to $1.9 billion, and it would be trading on a PE ratio of 28.1x, assuming you use a discount rate of 7.6%.
• Given the current share price of $47.76, the analyst's price target of $52.92 is 9.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.