If an Activist shareholder gets involved in 2018, the Corning bull case shifts into extremely positive mode with at least 50-60% upside as 2019-2020 revenue growth, if combined with an efficiency program, can drive enormous incremental P&L + FCF capture by 2021. Without an Activist, however, current shareholders have to hold faith that management will do the right things for profit/cash flow, a losing bet over the last decade.
We have prepared a complete update on our Thesis, as well as an explanation of what we see as an Activist's opportunity.
Link to Slides: Hedgeye GLW Slide Deck (Hedgeye password required, email sales@hedgeye.com for access)
Consider:
- Corning is a leader in each of their markets, dominant in IP, market share, profit share, and mindshare
- The company grows across the cycle, and while it may be non-linear growth, it is driven by core innovation rather than M&A
- However, management has not run the company efficiently, and the company exhibits poor bottom line / cash flow capture in spite of growth in revenue and operating profits
- Had OCF grown at the same CAGR as OP in the last decade, for example, the stock would be 50-60% higher on a 5% LTM FCF yield
We are moving Corning from Best Idea Long to Bench Long, hoping for a new entry point later this year that is closer to the 2H catalysts we are anticipating. We remain excited about positive revenue estimate revisions ahead, and after the YTD drop the stock is inexpensive on Street EPS, although we are now only just in-line with Street EPS. We intend to come back to review the stock ahead of 2H18 catalysts.
