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Optical Communications And Solar Sectors Will Open New Markets

AN
Consensus Narrative from 13 Analysts
Published
08 Aug 24
Updated
07 May 25
Share
AnalystConsensusTarget's Fair Value
US$51.99
13.3% undervalued intrinsic discount
07 May
US$45.08
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1Y
31.9%
7D
-1.5%

Author's Valuation

US$52.0

13.3% undervalued intrinsic discount

AnalystConsensusTarget Fair Value

Key Takeaways

  • Strong demand in Optical and Solar sectors, along with U.S. manufacturing, boosts sales, margins, and aligns with energy policies for revenue growth.
  • Share buybacks and innovations in data centers reflect confidence in cash flow and support earnings per share growth.
  • Corning's strategic reliance on secular trends for growth, exposure to trade tensions, and competitive market pressures may challenge profitability and financial transparency.

Catalysts

About Corning
    Engages in the optical communications, display technologies, environmental technologies, specialty materials, and life sciences businesses in the United States and internationally.
What are the underlying business or industry changes driving this perspective?
  • Corning's Springboard plan aims to add more than $4 billion in annualized sales by 2026, driven by strong demand in Optical Communications and Solar sectors due to powerful secular trends, positively impacting revenue growth.
  • The company sees substantial growth in Optical Communications, particularly in innovations for Gen AI data centers, which are expected to drive incremental revenue and accelerate operating margin improvements toward 20% by the end of 2026.
  • Corning's significant U.S. manufacturing footprint provides a competitive edge and is expected to attract commercial agreements, enhancing sales and net margins despite tariff implications.
  • In the Solar market, Corning plans to commercialize new U.S.-made products with committed customer capacity through 2025, aligning with government policies on energy independence, leading to higher revenue and earnings.
  • The continued aggressive share buybacks reflect confidence in future cash flow generation and are expected to support earnings per share growth over the Springboard time frame.

Corning Earnings and Revenue Growth

Corning Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • Analysts are assuming Corning's revenue will grow by 10.7% annually over the next 3 years.
  • Analysts assume that profit margins will increase from 3.3% today to 12.7% in 3 years time.
  • Analysts expect earnings to reach $2.3 billion (and earnings per share of $2.72) by about May 2028, up from $454.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $2.1 billion.
  • In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.8x on those 2028 earnings, down from 84.4x today. This future PE is greater than the current PE for the US Electronic industry at 20.0x.
  • Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 7.73%, as per the Simply Wall St company report.

Corning Future Earnings Per Share Growth

Corning Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Corning's reliance on non-GAAP core performance measures, as opposed to GAAP data, may obscure financial transparency, potentially leading to investor concerns regarding revenue and net margins.
  • Exposure to tariffs, particularly from geopolitical tensions between the U.S. and China, although mitigated by Corning's local manufacturing strategy, still presents a potential risk that could affect net earnings.
  • Corning's growth projections are highly reliant on secular trends like Gen AI and solar. Any slowdown or change in demand for these technologies could negatively impact revenue expectations and overall financial performance.
  • The potential macroeconomic downturn, while adjusted for in Corning's risk analysis, still poses a threat as it could affect customer spending on big-ticket items like optical and automotive products, impacting revenue and net earnings.
  • Increased competition in key markets such as Optical Communications and Solar, particularly from foreign manufacturers, could pressure pricing and margins, adversely affecting operating margins and overall profitability.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The analysts have a consensus price target of $51.994 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 $43.92.
  • In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $18.4 billion, earnings will come to $2.3 billion, and it would be trading on a PE ratio of 23.8x, assuming you use a discount rate of 7.7%.
  • Given the current share price of $44.76, the analyst price target of $51.99 is 13.9% 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.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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