Quick Pitch: Corning (NYSE: GLW) -- Long

Member: Andrew Gordon
Title: Other
Firm: Formerly at JP Morgan Capital Partners
Focus: Deep Value
Location: New York, NY
Undergrad: Harvard College
Post Grad: Columbia Business School (Current)
Notable Stock Expertise: GMCR, GLW, TRW

Corning (NYSE: GLW) Details
Recommendation: Long
Timeframe: 1-2 Years
Current Price: $13.86
Target Price: $22.00

Quick Thesis
Corning Inc. represents an attractive long-term investment over a 1-2 year time horizon. The stock is trading around $13.60, which is just around book value and down steeply from its year-ago high of $23.37.

The company currently trades at 4.1x LTM EBITDA and 7.8x LTM EPS. Its share price is currently heavily reliant on its Display segment (one of five segments), which accounts for 40% of Corning’s sales but 84% of earnings.

For an investor willing to hold on to this stock for several years, Corning offers a variety of products with plausible breakout potential that could send the company’s intrinsic value and market price soaring above the current intrinsic value.

Brief Details
Throughout 2011, the market soured on this company as suspicions grew and were eventually confirmed by company management that the display business is facing a structural decline in product pricing about two years earlier than had originally been anticipated. I believe the market has strongly overreacted and I place the stock’s intrinsic value between $22 to $26 (or, 66-95% above the current market price) based on asset valuation and earnings power valuation methods.

Gorilla 2 is the next generation (20% less thick) of the product that Corning launched in 2007, which immediately emerged as the gold standard for the glass covers on touchscreen devices. Company management believes it is years ahead of the competition; and it sizes the TAM for Gorilla Glass at $1.5-7Bn by 2014.The TAM could be significantly larger than this given the potential for Gorilla Glass to break into the auto industry. By replacing the currently prevailing soda-lime glass (windshields, etc), the weight of the glass could be reduced by half and therefore provide ~1% fuel savings. If adopted by the next auto design cycle, each 1% degree of industry penetration increases Corning revenue by ~$270MM.

The market’s reaction and current share price suggest the LCD market is effectively being dissolved and made obsolete.