Shares of Corning (GLW) continue to be weak following yesterday’s cut in the company’s fourth-quarter glass production outlook.
The shares are up just a penny at $13.20 in an otherwise very vibrant market today.
The stock received one downgrade today, that I can see, from CLSA-Asia Pacific Markets’s Avi Silver, who cut his rating on the stock to Underperform from Outperform, citing LG Display Co. Ltd. (LPL) as the “large Korean customer” who Corning had said reneged on taking the expected amount of glass from the company’s Samsung Corning joint venture.
The drama appears to have involved some aggressive fighting over prices, writes Silver.
“Samsung Corning (SCP) has fought to reclaim lost market share by lowering its premium pricing (still at a premium but less than previously) and LG Display still abandoned them after NEG and Asahi reduced pricing once again.”
The problem, in Silver’s view, is that even after Corning cuts production and supplies of glass are drawn down, price battles may continue for the foreseeable future
We see this phenomena continuing and don�t expect an improvement until mid-2012 at the earliest. Our prior view on Corning was that glass demand would bounce back and align with a better retail LCD TV demand environment after glass channel inventory-bottoms. While this may still occur (albeit later than we originally anticipated), the glass pricing environment is deteriorating, supply-chain issues persist, and company-specific issues related to lower SCP market share and equity earnings lead us to reduce our estimates and rating.
Silver has a $14 price target on Corning shares.
Brendan Furlong of Miller Tabak, on the other hand, reiterates a Buy rating today and a $19 price target, writing that “Glass supply into the LCD industry continues to be relatively tight and capacity constraints have positive implications for the health of the over all industry into 2012.”
“This should allow reasonable pricing conditions and margins for Corning.”
Silver sees this quarter being “the end of negative earnings revisions.”
He does warn, however, that the stock trades entirely on the prospects for LCD television glass at the moment, and that further out in time, that market will surely mature. The company’s “Gorilla Glass” product for tablets and smartphones “shows promise,” as does the glass for fiber optic products, but they alone will not be able to offset an eventual slowdown in TV glass demand.
Previously: Apple: Corning�s Shortfall Not An iPad Thing, Says UBS, November 30th, 2011.
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