Corning Incorporated (NYSE:GLW) has been manufacturing glass and ceramic products for more than 150 years. This has meant everything from the white casserole dish your momma used to bake with to lab beakers and flasks. But Corning has a brand new bag; well … it’s actually a 48-year old patent that has been sitting dormant until now.
If you look around your house and in your pocket at your mobile phone, you may notice that glass is a prominent material used. Corning’s “Gorilla Glass” is up to three times as strong as chemically strengthened versions of ordinary soda-lime glass that is double the thickness (in other words, it’s wicked strong). This makes Gorilla Glass perfect for cell phones, TVs, touch-screen monitors, etc., all of which are prone to scratching, breaking, and weight sensitivities. Because of the strength of the glass, designers of many electronics products would have more flexibility and thus an increase in possible form factors to attract consumers.
The best part about this is that the research and development is already done and the costs absorbed, which is a positive for Corning (although I am not sure about patent protection). If you have cracked or scratched your cell phone (iPhones are especially prone to this), you understand the need for a much more scratch- and shatter-resistant glass. Obviously, these benefits come with a cost – literally. Gorilla Glass is pricey and might add $30-$60 to the average flat-screen TV price, according to DisplaySearch Analyst Paul Gagnon.
The simple fact is that Corning is pushing this product, which could be a relatively profitable business because of the minimal start-up costs. In a press release today, Corning announced that they will inject $180 million into a Gorilla Glass manufacturing facility in Kentucky. Furthermore, they will be expanding capacity into the growing thin-film photovoltaic cell market (solar energy).
Analysts’ reports I have read offer mixed reviews and forecasts of the product, but investors seem to have already taken a liking to the possibilities of Gorilla Glass (formerly called Chemcor). The stock has advanced $3.00, or 18%, in a little over a week and has broken through its prior resistance of $18.75, which it is still holding above today. On Monday, with the market rallying sharply and continued excitement about Gorilla Glass swirling, GLW jumped another 5.68% on the day to close at $19.15.
Monday’s close took the stock above its upper Bollinger band, which means the shares may be getting a bit overbought in the near term, according to that technical indicator. But obviously, if you believe this news may be long-term bullish for GLW, this current overbought situation may be less of a risk (as you may have a much higher future target price). Today’s price action corrected the overbought condition slightly and brought the stock back down to about $19.00. At $19, Corning is trading at about 10.6X trailing earnings, which, compared to its peers and the overall S&P Index, is relatively cheap. This is subjective, however, and Corning is not known to be a high-growth company. As such, it typically doesn’t command high earnings multiples.
As an options trader, there are obviously several strategies that can be employed to take advantage of this news, depending on whether you are extremely bullish or if you believe Gorilla Glass will only have minimal impact.
Some questions you must ask yourself are:
Has the market already built in excessive premium for the next quarter in the stock?
Does Gorilla Glass really have long-term profit potential for Corning?
By how much do you feel the product will influence the company’s bottom line, both near-term and long- term?
What is your thesis on the global economy and consumer electronics demand?
What is your thesis on crude/natural gas prices? Higher prices may drive alternative energy solutions like solar energy higher and thus have a tertiary effect on sales for Corning.
Photo Credit: Carey Tilden
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Tags: Corning, GLW, Gorilla Glass
