Corning gets Neutral rating at Mizuho on ‘unusual currency risks’

Mizuho Securities started coverage of Corning (NYSE:GLW) with a Neutral rating and $36 price target.

The firm said the Neutral rating reflects some unusual currency risks. A team led by John Roberts noted that they could become more constructive if Asian currencies recovered, and/or if Corning showed price increases in display glass to offset currency without share loss, and/or if volumes showed signs of recovering to more than offset those risks.

Corning is a leader in glass optical fiber products, glass for flat panel displays and many other specialty glass and ceramic products. Just over 50% of sales are in Asia, where Corning hedges FX and reports at hedged rates. Volumes surged early in the pandemic, but declined as consumer spending switched to services, and appear to have bottomed, according to the analysts.

Roberts and his team said that there are high barriers to entry and strong customer relationships. Corning is a global leader in niche glass/ceramic applications as specialty materials (such as not windows, containers, fiberglass), mainly for tech applications. Illustrative customers (not disclosed) for flat glass (including Gorilla Glass) include Samsung Electronics (OTCPK:SSNLF) and Apple (AAPL) (indirectly).

Optical fiber & related markets, which are less concentrated, illustrative customers would be Verizon Communications (VZ), AT&T (T), Wesco (WCC) and CommScope (COMM). Life Sciences plastic and glassware illustrative customers include Thermo Fisher Scientific (TMO) and VWR, the analysts noted.

Another key point Mizuho noted was that two-third of sales are ex-U.S., with just over 50% in Asia with one-third in China alone. The analysts said that a vital risk is that Corning hedges FX (into 2025 currently) and reports at hedged rates.

Corning reports adjusted revenues of about 6% higher than if at current rates, and March quarter 2024 earnings were around 100% higher. Depending on how currencies evolve, the company thinks it can continue hedging and/or implement pricing to maintain reporting equivalent to its hedged rates, the analysts added.

Low-cost raw materials allow high gross margins, but projects are R&D and capex heavy, according to Mizuho. In addition, the analysts said that there are key emerging areas to watch for — Ultrathin windshield and dashboard glass to lighten and techify cars, silicon carbide substrates for power chips, and Valor ultra-durable glass vials for high-value injectables (such as vaccines).

Corning (GLW) has a Buy rating at Seeking Alpha’s Quant Rating system, which consistently beats the market. Meanwhile, the Seeking Alpha authors’ average rating is also positive with a Buy and so is the average Wall Street analysts’ rating, Buy.