Corning's Optical Communication Segment Should Continue To Drive Growth In 2019

Corning Incorporated (NYSE:GLW) reported strong Q1 results recently on the back of impressive growth for its Optical Communications business – which is its largest operating segment. The segment has benefited over recent quarters from improved demand for its Carrier and Enterprise Network products, and received a significant boost from the acquisition of 3M’s Communications Markets business. While the company’s other segments also witness steady growth in revenues, we believe that the Optical Communications segment will remain the primary profit driver over subsequent quarters.

Per Trefis estimates, Corning’s shares have a fair value of $34, which is roughly 10% ahead of the current market price. We have summarized our full year expectations for Corning based on the company’s guidance and our own estimates, in our interactive dashboard – How Did Corning Fare In Fiscal Q1 And What Is The Forecast Full-Year?  In addition, here is more Trefis Industrials Data.

A Quick Look at Corning’s Revenue Sources

Corning reported $11.3 billion in Total Revenues in Fiscal 2018. This included the following revenue streams:

  • Optical Communications: $4.2 billion in FY2018 (37% of Total Revenues). This segment is classified into two main product groupings – carrier network and enterprise network.
  • Display Technologies: $3.1 billion in FY2018 (29% of Total Revenues). This segment manufactures glass substrates for high performance displays, including organic light-emitting diode (OLEDs) and liquid crystal displays (LCDs).
  • Specialty Materials: $1.5 billion in FY2018 (13% of Total Revenues). This segment manufactures products that provide more than 150 material formulations for glass, glass ceramics and fluoride crystals.
  • Environmental Technologies: $1.3 billion in FY2018 (11% of Total Revenues). This segment manufactures ceramic substrates and filter products for emissions control in mobile applications around the world.
  • Life Sciences: $946 million in FY2018 (8% of Total Revenues). Life Sciences segment works with researchers and drug manufacturers seeking to increase efficiencies, reduce costs and compress timelines.
  • Other: $216 million in FY2018 (2% of Total Revenues). This segment is primarily comprised of the results of the pharmaceutical technologies business and new product lines and development projects, as well as certain corporate investments.

Optical Communication Segment Continues To Excel

  • Optical Communications segment delivered a robust performance in Q1, with revenues growing 20% YoY driven by data center and carrier business as well as sales from the recently acquired 3M Communication Markets. The acquisition of 3M’s Communication Markets Division will not only expand the company’s global reach and portfolio, but also provide significant long-term growth opportunities stemming from the expected deployment of 5G between mid-2019 and late 2020
  • Moreover, Corning’s management indicated that they remain on course to surpass $5 billion in 2020 sales for the segment as the company continues to grow faster than the overall market due to its unique co-innovation model. Overall demand for Corning’s fiber, cable and connectivity solutions remains strong and this should help to drive this segment’s growth in the foreseeable future.

Environmental Technologies Segment Also Has Sizable Upside Potential

  • Environmental Technologies segment posted another strong quarter, with net sales of the segment surging by 12% year-over-year to $362 million driven by accelerating adoption of gasoline particulate filters (GPFs) and growth in heavy-duty diesel. GPFs demand continue to remain strong in the European countries – owing to adoption of the European emission standards by auto manufacturers. Further, the early adoption by auto OEMs of the China VI standard bodes well for the company, and we expect this to further boost the segment’s revenue in the near future. For full-year 2019, Corning expects this segment’s sales to increase in the low double-digits range.

Full-Year Outlook

  • For fiscal 2019, we expect Corning’s revenues to increase by about 8% to $12.1 billion. While all segments should see decent growth, the ongoing technology and manufacturing investments will also aid the company’s top-line growth.
  • Net income margin is expected to expand from 9.4% in FY2018 to about 11.5% in FY2019, largely due to strong revenue growth and ongoing innovations which should help to save costs.
  • We forecast that Corning’s adjusted EPS for fiscal 2019 is likely to be around $2.02. Using this figure with our estimated P/E ratio of 17x, this works out to a price estimate of $34 for Corning’s shares, which is roughly 10% ahead of the current market price.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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