Analyst Note| William Kerwin |
We’re maintaining our $40 fair value estimate for narrow-moat Corning after the company reported third-quarter results that were in line with management guidance. Corning’s strong pace of revenue growth continues, but its profitability is still dampened by rising input and logistics costs. We maintain our expectations for robust top-line growth to continue behind secular tailwinds toward 5G and connectivity, as well as growing dollar content in end applications. With shares down more than 5% after the release, we believe the market is skeptical about Corning’s ability to grow the bottom line in pace with revenue. We think current inflationary pressure on margins will be short term and that Corning’s profitability will improve as it leverages its centralized cost advantage and uses its sticky customer relationships to pass on pricing increases. We view shares as undervalued and think the current price presents an increasingly attractive opportunity to invest in a diversified, excellent operator with long-term growth potential.