Corning Back to Attractive Long-Term Valuation, Chart Shows Trouble (GLW)

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Corning Inc. (NYSE: GLW) has filed to raise capital in an automatic shelf registration today.  The reality is that this is just a shelf registration and it is not unusual for companies to have these registrations.  That being said, we expect no capital to be raised by the company and the company’s recent warning and adverse customer event does not destroy the company’s long-term opportunity for investors.

The shelf filing will allow for the future sale of any combined securities offerings of Debt Securities, Warrants to Purchase Debt or Equity Securities, Preferred Stock, Depositary Shares, and/or Common Stock.  To support the belief that no capital will be raised, no underwriters were named nor was any size indicated.

The use of proceeds was “for general corporate purposes. General corporate purposes may include repayment or reduction of outstanding debt, financing acquisitions, repurchase of Corning common stock, additions to working capital, capital expenditures and investments. We may temporarily invest the net proceeds from the sale of any securities pending their use for other specified purposes.”

We have already called Corning a very oversold stock and the company’s latest warning does not change the belief that this company will get a severe boost in the future.  The Korean customer’s backing out of its obligations was not well received because it was not modeled in by those who follow Corning.  The move caught us by surprise as well.

All things being equal, we would not expect that Corning will be raising capital in any serious manner unless the company has identified a significant game-changing acquisition opportunity.  Anything is possible.  The company has a huge buyback plan and we belive that the company will be aggressively buying shares now that shares fell again. 

Corning has a very capable management team that understands how to deal with competition and it also knows how to deal with adversity in the market place.  Going back to 1936, it has seen its fair share of ups and downs in the economy.  Corning carries only about $2 billion in long-term debt and it actually trades at a discount to its book value now that shares are back at $13.34.

Technicians will show how its chart is not a pretty one.  Actually, that point cannot be argued against if you look at the chart below.  Instead of the stock ramping higher and trying to challenge its 50-day moving average, now it has busted under its 200-day moving average all over again.  It is an ugly chart all over again.  While we see the value as attractive and while we think Corning’s stock price will go higher, we also would not expect any immediate recovery.  Shares could even soften further in the near-term.  The good news is that there is still major support down only 10% or so from current prices.

Our take… Corning remains oversold, was sold off too harshly during and after the summer, and should ultimately be able to get back up to $20.00 over the long haul.  Will that happen tomorrow? No way.  It will take quite some time.  We also do not expect any merger analysis to matter at or under book value because the near-$20 billion price tag is just too high for most companies and private equity can no longer cobble together enough capital for a premium merger.  The chart is ugly, but there is a solid valuation here for patient investors.

Shares are up almost 1% at $13.39 today, but that is down over 10% from just two days ago. It is pretty sad when you have a move like we saw on Wednesday and the stock fails to participate in the rally.  That is called unlucky timing of the bad news.


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