Goldman Sachs Adds Corning (GLW) to Conviction Buy List as Glass Recovery Appears 'Imminent'

(Updated - July 7, 2016 8:26 AM EDT)

Goldman Sachs upgraded Corning (NYSE: GLW) from Buy to Conviction Buy with a price target of $27, implying upside of 34%. Analyst Doug Clark sees an imminent cyclical recovery in glass, and he thinks year-over-year revenue and EPS declines bottomed in the first quarter of 2016 and will return to growth in the third quarter.

Analyst Doug Clark explained, "We have become even more constructive on the cyclical backdrop for the glass industry, and expect a glass volume recovery to drive a positive inflection in revenue growth, starting with 2Q earnings on July 27. This should lead to the first sequential expansion for gross margins in a year. We also believe buybacks are under-appreciated following the sale of Dow Corning. We model 4%/13% upside to Street 2016/17 adjusted EPS, driven by revenue/mix in 2016 and buybacks in 2017."

Discussing catalysts, the analyst said, "Supply chain data points continue to support our view that utilization cuts and inventory reductions ended in 1Q16. Thus, we expect glass volumes to grow above normal seasonality in both 2Q and 3Q16. As Corning’s highest margin business (and ~60% of net income), this should also contribute to improving margins and above-consensus EPS. Based on our supply demand model, we estimate glass volumes have under-shipped demand for the past three quarters. Second, we forecast more than $4bn of buybacks over the next year (following the divestiture of its Dow Corning business), which contributes about $0.07 or 6% of upside to Street 2017 EPS. Finally, we view recent yen FX moves as a net positive for Corning, as it more closely aligns actual and adjusted earnings and presents upside risk to 2018 hedges."

For an analyst ratings summary and ratings history on Corning click here. For more ratings news on Corning click here.

Shares of Corning closed at $20.11 yesterday.

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