Corning shares could rally as earnings hit a bottom, according to Deutsche Bank. Analyst Matthew Niknam upgraded the materials stock to buy from hold, and increased his price target by $3 to $38, which implies the stock could gain 15.7% from where it closed Friday. “We believe 1Q23 results are likely to mark the bottom for both revenues (+ yoy growth) and non-GAAP EPS, with improvements in forward periods via positive inflections in key segments including Display and Optical (which collectively make up 55%+ of GLW revenues),” Niknam said in a note to clients Sunday, adding that the company has been “turning a corner.” The stock gained 2.6% in premarket trading following the upgrade. It’s up nearly 3% so far this year. Niknam expects tailwinds to gross margin to help drive earnings per share as the year progresses. He cited several factors that are boosting profitability, including higher margin business units such as display seeing better quarter-over-quarter growth, price increases in businesses like optical, and easing supply chain challenges. He expects Corning to earn 40 cents per share in the first quarter, which will then grow to 47 cents per share by the second quarter. By the end of 2023, quarterly earnings will rise to 59 cents per share, he said. Valuation, meanwhile, is considered more reasonable with growth expected to accelerate, Niknam said. But Niknam did note he could be expecting the bottom to hit earlier than it will, while also warning that performance could be impacted by changes to the broader economy. The analyst anticipates Corning could mitigate some of the challenges from a weakening economy through its diverse revenue streams and secular tailwinds. Those tailwinds include technology trends such as the move to solar, increased fiber rollout and strong performance for high-end smartphones. Corning should also be helped by China’s reopening, he said, given that it’s home to around 30% of the company’s revenue. Still, Nikname trimmed his 2023 and 2024 non-GAAP earnings per share estimates by around 2% to 3% to $2.02 and $2.32, respectively, from $2.05 and $2.39 as a result of a challenging economic backdrop and a moderate ramp-up in the optical communications business revenue following its expected, first-quarter bottom. “While we anticipate 1Q23 will mark the bottom and we should see positive inflections in subsequent periods, we are well aware we may be somewhat early on this call,” he said. “There are still estimate risks to published consensus (especially in light of a choppier macro backdrop in recent weeks).” — CNBC’s Michael Bloom contributed to this report.
