Last year, Corning raked in $3.6 billion in gross profits and posted its eighth straight year of positive free cash flows. And the balance sheet is even more impressive - boasting about $5.8 billion in cash.
That's a nice pile of cash to pay dividends, repurchase shares, make acquisitions or plow back into research and development (R&D) to create tomorrow's innovations.
Speaking of innovations, the company just unveiled the new-and-improved Gorilla Glass II, which is just as strong and 20% thinner.
As it penetrates the market, I believe sales could soar from $7.9 billion last year to break $10 billion by 2014.
And here's the best part: pessimism surrounding a temporary market overcapacity has cut the stock price in half.
Since peaking above $23 per share in March 2011, the stock has slid by more than half and currently trades near $12.15 a share.
Some of that pullback was justified. The company has been pressured by weaker demand for big-screen LCD TVs (which need much more glass than a phone) and telecom carriers have slowed their capital expenditures.
But I think the selloff has been overdone.
In fact, of the 425 companies in the S&P 500 with a market cap above $5 billion, Corning's 9.67 price-to-earnings ratio (P/E) makes it cheaper than 385 of them, or 90%.
Even in a "slowdown", Corning's telecom sales climbed 21% last year, thanks in part to a plum contract with Australia's National Broadband Network. Revenue from Gorilla Glass nearly tripled, pushing the specialty materials division up 86%.
LCD glass pricing has stabilized, the company just landed new supply agreements with top manufacturers, and Gorilla Glass enjoyed its strongest quarterly sales ever.
Third-quarter revenue broke $2 billion, up 7% from the prior quarter. And earnings of 35 cents per share, while down from a year ago, represent a 17% sequential increase.
I think the worst is over, which makes now an opportune entry point and locks in a nearly 3% dividend yield.
And the rebound may have already started...
After hitting a low of $10.90 in November, the company's share price has steadily increased to close at $12.15 a share on Monday, Dec. 3.
However, Japan's Asahi Glass is a formidable rival that has developed its own glass, which could poach some of Corning's manufacturing customers.
But even if there is zero growth and cash flows remain flat during the next few years, the stock is still undervalued. Corning's cash and other assets have a net worth of $14.78 per share -- well above the current share price.
In other words, the stock is trading at a 16% discount to the value of the firm's existing assets -- let alone future earnings growth potential.
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