If you were around during the tech bubble, you may remember Corning Inc (GLW) as a high-flying technology company that was knee-deep in fiber optics -- and not as a glass company dating back to the mid-1850s. Corning, the tech-bubble company, caught up in the frenzy of that era, saw its shares eclipse the $100 mark in the summer of 2000. Two years later, the air was let out of the balloon and the stock bottomed out at around $1.
Corning has never revisited that $100 price point, and it has endured some other rough times (2008 and 2011), but it has quietly been putting up good numbers and reestablishing itself as a solid-profit-margin, dividend-paying name.
While I am not overly enamored of the market's constant focus on a single quarter's earnings, which has become ritual, Corning's results over the past several quarters are quite interesting. The company has put up six consecutive positive earnings surprises, including third-quarter results released on Tuesday. That's with more than a dozen analysts covering the name.
Those Q3 results showed earnings per share of 43 cents, two cents ahead of the consensus, and revenue of $2.7 billion, $100 million ahead of expectations. These are certainly good numbers, but my attention is elsewhere within that report. One of the most-impressive things to me about Corning is that it has become a serial returner of capital to shareholders, through both stock buybacks and cash dividends. When done right, and in tandem, that can be a powerful combination.
In Corning's case, the company has more than tripled the quarterly dividend, from 5 cents to 15.5 cents since 2011, representing a 21% compound annual growth rate. The company has also pledged to increase that dividend by at least another 10% in 2018 and 2019. With more than $3.8 billion in cash on the books, and a still-low dividend payout ratio, the company should have the wherewithal to follow through.
In addition, Corning has reduced shares outstanding by 44% since year-end 2011, spending more than $1 billion on share repurchases in the last quarter alone. Shares outstanding have dropped from 1,562 billion in December 2011 to 869 million as of the end of the third quarter.
The company remains highly profitable well. Third-quarter net profit margins were close to 15%. While not as cheap as it once was, GLW currently trades for about 17x next year's consensus estimates, and yields about 2%.
Lest you think that the company is doing nothing but returning capital to shareholders, it also has a robust R&D spending plan -- including $10 billion committed over four years, which commenced in October of 2015.
There's always a downside with most names -- and in Corning's case, given its dependence on display glass (Gorilla Glass), a slowdown in consumer spending, or a recession, would eat into revenue. And depending on the depth, could also derail plans to return capital to shareholders.
But Display technology is not the company's only game: Last quarter it generated 71% of revenue and 46% of profits from other businesses -- including optical communications, which generated 35% of revenue. However, display technology is what the company is most associated with, and is its highest margin business, with a 26% net margin in Q3.
Despite the risk, this is my kind of company (at least outside the small, underfollowed value names I typically gravitate toward) -- high margin, a focus on returning capital via dividends and buybacks and trading at reasonable-to-lower valuations given all of the above.
This is not your 2000 tech-bubble-era Corning, for sure.