Corning, Value vs. Value Trap

Corning Inc. (NYSE: GLW) may need to go back to its Glassworks name. The stock is proving to be as fragile as glass, and not its Gorilla Glass either. Unfortunately, even with all of the tablets and smartphones, Corning has said that it expects a decline in glass volumes due to a seasonal inventory correction. It also expects that price declines may be higher than it saw in the last quarter as well. Corning looks like a value stock if you run any traditional screens. Its status would be a value stock, but Corning looks more and more like a value trap.

So, even if these expected drops are projected in the single digits it is still a double-whammy. What is so interesting is that Corning marginally beat expectations in the last quarter (earnings were $0.34 EPS and $2.04 billion in sales versus estimates of $0.32 EPS and $2.02 billion in revenues. Apparently, no one thinks that this guidance was sand-bagged just so it could have a positive surprise.

What is worrisome here is not just that the company blamed global economic headwinds for the weakness. The company said that the headwinds are expected to continue next year. If you take Corning at its word and just keep sales and revenue flat in 2013, Corning now trades after a large drop at only about 9.5-times earnings and about 2.5-times sales. The company has a dividend yield of 2.7%.

Everything you have just heard makes this stock sound cheap on the surface. So is Corning a value stock? Unfortunately, Corning has become a value trap. To prove the point, shares are down over 9% at $12.14 and we have already seen more than twice its normal volume since 27 million shares have traded.

Corning shares have traded in a range of $10.62 to $15.75 over the last 52-weeks.

JON C. OGG