There May Be An Inflection Point In Earnings For This Materials Stock This Quarter

According to Deutsche Bank, Corning shares may increase as profits reach a low.

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The materials company was upgraded by analyst Matthew Niknam from hold to buy, and his price objective was raised by $3 to $38, suggesting a potential gain of 15.7% from Friday's closing price.

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Niknam wrote in a note to clients on Sunday that the company has been "turning a corner" and that 1Q23 results "are likely to label the bottom both for revenues (+ yoy growth) and non-GAAP EPS, with advancements in forward time frames via positive intonations in major components including Display and Optical (which together account for 55%+ of GLW revenues).

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After the upgrading, the stock increased 2.6% in premarket trading. It has risen by almost 3% this year to this point.

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As the year goes on, Niknam anticipates that improvements in the gross margin will support rising earnings per share. He listed a number of elements that are enhancing profitability, including supply chain issues becoming less of a problem and greater quarter-over-quarter growth in higher margin business divisions like display.

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He forecasts that Corning will make 40 cents for each share during the initial quarter and 47 cents for each share by the second. He predicted that quarterly earnings would increase to 59 cents a share by the end of 2023.

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With growth anticipated to pick up speed, valuation is viewed as more realistic, Niknam said.

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However, Niknam cautioned that he might be anticipating the bottom to come sooner than it would, and he also noted that adjustments to the overall economy could have an impact on performance.

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The analyst believes that Corning's varied revenue sources and secular tailwinds may help it to offset some of the negative effects of a slowing economy. The transition to solar energy, the expansion of fiber networks, and the performance of high-end smartphones are a few examples of these technological trends. Given that China accounts for about 30% of Corning's business, he claimed that the country's reopening should also benefit the company.

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Despite this, Nikname reduced his non-GAAP earnings per share projections for 2023 and 2024 by about 2% to 3% to $2.02 and $2.32, respectively, due to the challenging economic environment and a moderate ramp-up in optical communications business revenue after the sector's anticipated first-quarter bottom.

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Although we believe 1Q23 will be the bottom and that succeeding quarters could see positive inflections, he added, "We are well conscious we might be somewhat early on  this call." There are still risks associated with reported estimates, particularly given the recent choppy macroenvironment.