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Corning Updates Guidance Based on Current Market Conditions

Zacks Equity Research

Corning Incorporated GLW recently updated guidance for its operating segments to better reflect the business environment under the prevailing market conditions. In particular, the company has lowered expectations for two segments, while maintaining view for three.

Within the Display Technologies segment, Corning has reduced its volume expectations for the third quarter and currently anticipates sales to be down by high single digit percentage on a sequential basis. The company had earlier expected a sequential sales decline of low single digit percentage due to ramp up of Gen 10.5 manufacturing capacity. The soft sales projections are primarily based on lower-than-expected utilization levels by several panel manufacturing customers driven by conservative buying patterns by set makers. However, management expects this change to be temporary and anticipates panel maker utilization to gradually rise in first-half 2020.

In the Optical Communications segment, third-quarter sales are projected to be down by a low-teen percentage compared with the prior expectation of a low-single digit percentage decline year over year. This is largely attributable to lower capital spending by several major carriers on cable deployments and fiber-to-the-home projects. For full-year 2019, Corning expects segment sales to decrease 3-5% against earlier expectation of a low-to-mid-single digit percentage top-line growth.

Notably, the stock has declined 14.6% in the past year while the industry has rallied 4.3%.

Despite macroeconomic headwinds, Corning continues to outpace the market it serves, which underscores the resilience of its portfolio. The company is extending strong performance under its new 2020-2023 Strategy & Growth Framework. It is focusing on its portfolio and utilizing financial strength to enhance shareholder returns. The company’s capabilities are becoming increasingly vital to diverse industries, and multiple opportunities support leadership across all of its market-access platforms.

Multiple factors should drive Corning’s fiber optic solutions business over the next several years, primarily the increasing use of mobile devices that require efficient data transfer and efficient networking systems. Supporting this trend is the proliferation of clouds, which is now resulting in increased storage and even computing on a virtual plane. Since optical networks are more efficient and most of the existing networks are copper-based, the demand for optical solutions is particularly strong. Corning has several products focused on this market to meet the varying consumer needs and aims to benefit significantly from the underlying growth trend.

Corning currently has a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry are Communications Systems, Inc. JCS and UTStarcom Holdings Corp UTSI, both sporting a Zacks Rank #1 (Strong Buy) and SeaChange International, Inc. SEAC, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Communications Systems surpassed earnings estimates in the last reported quarter by an astounding 600%.

UTStarcom surpassed earnings estimates twice in the trailing four quarters, the average positive surprise being 56.4%.

SeaChange International has a long-term earnings growth expectation of 10%.

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