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Corning stock (NYSE: GLW) saw a 10% rise over the last five days, faring better than its peer — General Electric stock – up 2%. The rise in GLW stock this week can primarily be attributed to the company’s revision of its outlook for the Q2 2024 following an increased demand for its new optical connectivity products for generative artificial intelligence applications. The company now expects its Q2 sales to be $3.6 billion, up from its prior outlook of $3.4 billion, and adjusted earnings per share to be at the higher end or slightly above its earlier provided range of $0.42 to $0.46. This has boded well for its stock. However, looking at a slightly longer term, GLW stock has shown gains of only 30% from levels of $35 in early January 2021 to around $45 now, vs. an increase of about 50% for the S&P 500 over this roughly three-year period.

The increase in GLW stock has been far from consistent. Returns for the stock were 3% in 2021, -14% in 2022, and -5% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that GLW underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Information Technology sector including AAPL, MSFT, and NVDA, and even for the megacap stars GOOG, TSLA, and AMZN. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could GLW face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, we think GLW is appropriately priced at its current levels. We estimate Corning’s Valuation to be $42 per share, aligning with its current market price. At its current levels, GLW stock is already trading at 22x expected earnings of $1.91 on a per-share and adjusted basis for the full year 2024. Although the 22x P/E multiple is higher than the 18x average over the last five years, a slight uptick in valuation multiple seems justified given a rebound in demand for its optical communication business and the potential for strong growth amid the AI boom.

Corning’s revenue growth will benefit from its new optic products, including fiber, cables, and connectors, among others, aimed at reducing the overall installation costs. The company is targeting to add $3 billion in annual sales in the next three years, and a rebound in optical communication will be an important driver on that front. The optical communication segment sales of $4.0 billion in 2023, reflected a sharp 20% fall y-o-y, amid a softness in demand from mobile carriers. However, the demand for fiber optics is on the rise as data processing for AI systems increases, and this should bode well for Corning. Overall, we think that Corning will benefit from increased demand for its optic products, but its valuation seems to have captured the positives.

[1] Returns as of 7/9/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.