Sterne Agee Andrew Huang’s view is that the Samsung transaction makes sense financially due to immediate accretion and strategically given benefits of a long-term partnership. unfortunately, it also believes that investors have priced the favorable impact of the transaction into the stock.
Another risk is that the firm believes the full ownership of SCP gives Corning more exposure to weakening display fundamentals and excess glass capacity in Asia. It talked about Chinese TV demand weakening in September, as well as the October Golden Week holidays and panel maker’s inventories being at high levels. The firm thinks that display glass unit volumes and pricing in the December quarter may be weaker than expectations. The end result of the downgrade is that investors should use this opportunity to take profits.
Assuming strong execution on synergies and accretion on core earnings of 20% in Sterne Agee’s pro-forma model for the Samsung transaction, the firm’s 2014 and 2015 EPS estimates would go to $1.70 from $1.42 and then up to $1.85 from $1.55.
Shares of Corning closed up 14% at $17.52 after hitting a 52-week high of $18.07 on the day. A whopping 85 million shares traded on Wednesday versus 11.5 million on an average day. Corning’s market cap is now $25.6 billion.
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