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Corning's (GLW) Q3 Earnings to Gain From Strong Fiber Demand

Zacks Equity Research

Corning Inc GLW is set to release third-quarter 2017 results on Oct 24.

Notably, the Gorilla Glass maker has a positive record of earnings surprises in each of the trailing four quarters, with an average surprise of 10.15%. In the last quarter, Corning delivered a positive earnings surprise of 5%.

We expect Corning’s results to be driven by strength in the optical communications segment, primarily due to strong demand for fiber products. Moreover, solid demand for Gorilla Glass 5, expanding footprint in the automotive market and the launch of Valor Glass are other catalysts.

However, weakness in the Display segment remains a headwind, which can dent results. For third-quarter 2017, Corning expects glass volume to increase by low-single digit percentage, sequentially. The company expects sequential LCD glass price declines to be similar to the decline reported in second-quarter 2017.

Shares of Corning have returned 23.9% year to date, significantly outperforming the industry’s 19.1% rally.

 

 

Fiber Product Demand Drives Optical Communication

We expect sales to benefit from strong demand for fiber products, as reflected by the Verizon Communications Inc VZ deal, which was signed in April. The company recently delivered its 1 billionth kilometer of optical fiber.

Corning Incorporated Price and EPS Surprise

 

Corning Incorporated Price and EPS Surprise | Corning Incorporated Quote

 

The strong fiber demand is primarily driven by the U.S.-based telecommunications service providers’ intent to overhaul networks to improve 4G LTE coverage and accelerate 5G deployments.

Management anticipates Optical Communications sales to increase more than 10% from the year-ago period in the third quarter. The Zacks Consensus Estimate for Optical Communications revenues is currently pegged at $878 million.

Strong Gorilla Glass 5 Demand: Key Catalyst

Gorilla Glass, which falls under the Specialty Materials segment, is expected to benefit from strong demand. Reportedly, Apple Inc AAPL has used Gorilla Glass 5 in its upcoming iPhone X.

Moreover, the company remains focused on expanding footprint in the automotive market driven by gas particulate filters (GPFs) and a Gorilla-sized automotive glass business.

Corning expects Specialty Materials sales to increase by low-to-mid teen percentage range in the third quarter. The Zacks Consensus Estimate for Optical Communications revenues is currently pegged at $340 million.

Valor Glass Launch to Drive Sales

Corning in collaboration with Pfizer and Merck launched Valor Glass, apharmaceutical glass packaging solution. The company has partnered with the likes of Stevanato Group and Gerresheimer AG to accelerate the supply of Valor Glass to the pharmaceutical package market.

We believe that Valor glass is likely to gain rapid traction, which will benefit the Life Sciences business. Management projects the business to grow low-single digit percentage from the year-ago quarter.

Unfavorable Rank, Negative ESP

We believe Corning is unlikely to deliver a positive earnings surprise in the third-quarter due to an unfavorable combination of Zacks Rank #4 (Sell) and Earnings ESPof -6.43%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

We don’t recommend Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stock to Consider

Here is a stock you may consider as our proven model shows it has the right combination of elements to post an earnings beat this quarter:

NVIDIA Corporation NVDA has an Earnings ESP of +1.06% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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