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Will Top-Line Growth Support Corning's (GLW) Q4 Earnings?

Zacks Equity Research

Corning Incorporated GLW is scheduled to report fourth-quarter 2018 financial results before the opening bell on Jan 29.

In the last reported quarter, the company delivered a positive earnings surprise of 6.3%. Notably, Corning surpassed the Zacks Consensus Estimate in each of the last four quarters, the average beat being 4.1%.

The company is likely to report higher revenues in the to-be-reported quarter on the back of healthy growth dynamics. Whether this can result into an earnings beat remains to be seen.

Let’s find out how things are shaping up prior to the announcement.

Factors to Consider

During the fourth quarter, Corning inked a long-term supply contract with WaveOptics — a leading manufacturer of diffractive waveguides — entailing augmented reality optics. The company provides ultra-flat and high-index glass wafers for WaveOptics’ waveguides.

During the quarter, Corning announced that it has been recognized by the European Commission for developing an innovative solution that helps clean the air. The company received the Horizon 2020 Materials for Clean Air Award for its Air Purification Technology. Corning also announced that as part of its commitment to protecting the environment through improvement in processes, products and services, it has reduced energy intensity in its global fiber and cable manufacturing facilities by 50% through technology upgrades, equipment optimization and sharing best sustainability practices across the business.

Top-Line Growth

Corning expects such initiatives to translate into strong performance in the fourth quarter with 42% gross margin. It also expects sales to exceed $11.3 billion for full-year 2018. The Zacks Consensus Estimate for net sales from the Optical Communications segment, which accounts for the lion’s share of total revenues, is currently pegged at $1,101 million. It reported $928 million a year ago. Healthy revenue growth from this segment is likely to be driven by strong demand from data center and carrier customers, and sales from the 3M Communication Markets Division.

For the fourth quarter, net sales from Display Technologies are expected to be $814 million. It reported $745 million in the year-ago quarter. The company expects glass market volume growth to be in mid-single-digit percentage as higher television screen size demand escalates. It expects its display glass volume to grow faster than the market, driven by the Gen 10.5 ramp up.

Net sales from Specialty Materials are estimated to rise to $399 million from $393 million reported a year ago. While net sales from the Environmental Technologies segment are expected to increase to $317 million from $291 million, net sales from Life Sciences are projected to be $234 million. Consequently, for the fourth quarter, the Zacks Consensus Estimate for total revenues stands at $3,018 million. It reported $2,739 million in the year-earlier quarter. Adjusted earnings per share are pegged at 57 cents, up from 49 cents reported a year ago.

What Our Model Says

Our proven model does not conclusively show that Corning is likely to beat earnings this quarter as it does not possess any of the two key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Earnings ESP: Corning’s Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -2.04% as the former is pegged at 56 cents and the latter at 57 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Corning Incorporated Price and EPS Surprise

Corning Incorporated Price and EPS Surprise | Corning Incorporated Quote

Zacks Rank: Corning currently has a Zacks Rank #4 (Sell).

Note that we caution against stocks with a Zacks Rank #4 or #5 (Strong Sell) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

HCA Healthcare, Inc. HCA has an Earnings ESP of +2.09% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Equity Residential EQR has an Earnings ESP of +0.82% and a Zacks Rank #2.  

Illumina, Inc. ILMN has an Earnings ESP of +0.32% and a Zacks Rank #2.

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