Saturday, September 20, 2008

Dividend Stock Review: Corning (GLW)

I have added Corning (GLW) to my watch list and will look at the stock as a possible buy over the next few months. Here is a review of GLW:

GLW makes high technology fiber optics for the global telecom industry and high performance glass components for the personal computer and television maker industries. Their primary business segments as of the first half of 2008 are display technologies which is 50% of sales and 56% net profit, telecommunications which is 27% of sales and 4% net profit, environmental technologies which is 12% of sales and 10% net profit, life sciences which is 5% of sales and 15% of net profits, and specialty materials and other which make up the remaining 6% of sales. In 2007, 54% of overall sales were in Asia.

The display technologies segment manufactures glass substrates for active matrix liquid crystal displays (LCDs), which are used primarily in notebook computers, flat panel desktop monitors, and LCD televisions. GLW recently announced their third-quarter profits would come in less than expected. Recent demand has been lower for their LCD display units used in flat-screen TVs and PC monitors, and that's going to cut earnings at its largest division, .

"We continue to see evidence of ongoing strength in the retail market for LCD TVs, a key growth area for the LCD glass industry," CEO Wendell Weeks said in a prepared statement. "However, the supply chain correction, as outlined in our second-quarter conference call, is taking longer than we expected. We believe that the set assembly portion of the supply chain built too much inventory in the first half of this year. As set assemblers have continued to hold back on orders, panel makers have lowered prices and reduced utilization rates to balance the supply chain. We think these utilization cutbacks will continue into September in Taiwan."

However, GLW believes that the market for Generation 5.5 to Generation 8.0 glass substrates (60% of fourth quarter 2007 production) will rise faster in 2008. As end-user customers such as Sharp, Samsung and Sony move to Generation 8 from Generation 5.5, Corning will be able to make twice as many panels for LCD TVs per substrate and have wider margin.

GLW has very solid financials, they had $3.5 billion in cash and $1.5 billion in debt as of the end of June 2008. In 2007, GLW instituted a dividend for the first time since 2001 and announced a $500 million share buyback program. The current yield of the stock is 1.17% at the current price of $17.09 per share.

GLW believes demand for LCD TVs will generate significant glass demand well into the next decade and their portfolio of businesses will help deliver solid growth. S&P currently has a 4 star buy recommendation on GLW.

Disclosure: The Div Guy does not own shares of GLW at the time of this post.

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2 comments:

  1. I must admit, Corning caught my attention with its recent drop as well. I'm not a TV expert, but I wonder what long term trends affect this company. You have said the LCD demand is strong for the foreseeable future, but what could change that? I know the competing technology in TVs is plasma screens. Does Corning play there? Would a drop in price in plasma TVs affect the demand for LCD?

    I'm curious if you have a view.

    Best,
    Bootstrap

    ReplyDelete
  2. Bootstrap,

    That is an interesting question about LCD vs Plasma. I think LCD and Plasma are very similar in quality and cost at this time. One advantage LCD has over Plasma is that LCD requires substantially less power to operate than plasmas do. Corning is already at work on new emerging display technologies such as organic light emitting diodes (OLEDs) and other products for advanced display that will play a key role in future production.

    ReplyDelete

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