Corning: Investors Need a (Liquid) Crystal Ball

By Corning standards, the stock's $2 drop on October 25, to $21.10, is peanuts. Remember, this is a stock that plunged from $113 to $1 during the 2000-02 bear market. That catastrophe extended beyond the mere deflating of the technology bubble. It also underscored the fragility of Rust Belt manufacturing and the painful consequences of the collapse of a company that virtually fed and clothed an entire town. The city of Corning, in hilly upstate New York, saw its real estate market bust and its restored downtown virtually close up shop. Outside of steel or mining communities, it's tough to think of a comparable story.

But unlike many other tech and telecom companies that disappeared with the bursting of the bubble, Corning cheated death. It did so by transitioning from overdependence on optical fibers, a business that collapsed, into a global force in LCD glass for flat-screen displays used in computer monitors and televisions. As the market for liquid-crystal-display-glass products grew, Corning returned to profitability. Its shares (symbol GLW) reached as high as $28 this past spring before retreating to the low $20s. Corning still makes glass fibers for telecommunications -- a line that's shown tentative signs of improvement -- but now its fortunes are largely tied to demand for computers and consumer electronics.

That, in turn, means you have to think of Corning as a one-product company -- just a different product than it was associated with five years ago. It does have a smattering of smaller businesses, but the chance of Corning shares returning to hailing distance of $30 in the next six months will depend largely on holiday-season sales of electronics products. It's too soon to tell, chief executive Wendell Weeks told analysts and investors this week.

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Analysts are divided on the stock's prospects. Citigroup's Daryl Armstrong calls Corning a $20 stock based on what he foresees in terms of 2007 earnings and the prospects for falling world prices for LCD glass panels. More-optimistic analysts see Corning bouncing up to $26 or $28 in the next year. Bulls think LCD glass supplies will tighten, which is good for pricing, while volume growth will be stronger rather than weaker.

Analysts, on average, expect Corning to earn $1.25 a share in 2007, but the uncertainty surrounding two of the company's largest product lines means it's hard to establish what those earnings will be worth. If, as Armstrong says, no more than 17 times earnings, the stock is dead money now. A half-dozen other analysts argue that Corning merits a price-earnings ratio in the low 20s. If they're right, the stock has some moderate upside potential. But the volatile and seasonal nature of Corning's business presents obstacles. For its employees and the people of upstate New York, Corning's survival is a good thing. Whether Corning investors will have much more to cheer about, at least for the foreseeable future, is an open question.