GLW - Corning stock rises after Morgan Stanley upgrades to Overweight
2023-06-09 12:26:32 ET
Corning ( NYSE: GLW ) stock rose ~4% on Friday after Morgan Stanley upgraded the stock to Overweight with a $38 price target.
The firm's analysts believe that estimates and valuation are de-risked. The firm expects improved fiber demand and display margin improvement from price increases to be more meaningful catalysts in FY24, setting up an attractive risk/reward.
The analysts sees opportunity for positive estimate revisions over the coming 12 months, building up to an attractive risk reward. Exiting '22 and into '23, Corning has seen broad weakness across the portfolio as inventory digestion headwinds within the Optical business have coincided with weaker demand in the more consumer exposed businesses (display, specialty materials, auto and life sciences).
The analysts think that the path for forward revisions is now biased to the upside as — 1) end markets, mainly fiber, start to recover 2) Corning works to improve margins with pricing increases on the Display business; 3) and consumers eventually improves.
The firm expects the stock to move toward its price target to take place as estimates get revised upward, something it does not see taking place until Q4.
According to the analysts, Corning recently announced a 20% increase to glass substrate products within its Display business — with negotiations starting in Q3. Industry demand data points have also started to improve more recently.
The analysts added that while they expect timing of price increase impact to be lengthened and ultimate net price realization remaining up for debate, margins could start to see some benefit next year. However, this improvement is not built into Street estimates.
In addition, the firm noted that fiber business order improvement presents the biggest optionality for the remaining of 2023.
The analysts said that while the ultimate timing of the recovery in fiber demand remains unclear, reset consensus provides an attractive setup to a segment with secular tailwinds (from government funded programs, move to the cloud, increase in bandwidth).
The firm noted that the weaker macro backdrop has weighed on Corning's Optical business in late FY'22 and YTD FY23, as service providers and cloud end customers take in higher inventory levels and adjust rollout cadence to help cash flow and reduced need to forward order given resolved supply chains.
However, current orders do not reflect service provider publicly stated build plans, making the analysts believe that there is at least some chance of recovery in late 2023, which could drive the stock upside.
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Corning stock rises after Morgan Stanley upgrades to Overweight