I have a one-year price target of $49.15, a 15.65% increase over the September 13 closing price.

Because of its new Springboard plan and optical connectivity products for generative AI, Corning Incorporated (NYSE:GLW) is returning to profitable growth.

If it makes good on its potential, the company will produce mid-teens earnings growth this year and annually for the next four years. That would be welcomed by investors who have watched EBITDA and net income fall over the past two years.

I have a one-year price target that is 15.65% higher than the current price and rate Corning a Buy.

This material sciences company has been around, in various configurations, since 1851. It now specializes in glass science, ceramic science, and optical physics. Its revenue comes from multiple segments, as described in its 10-K for 2023:

Financial results have improved over the first half of 2024, because of market forces and because of its new Springboard "framework." Springboard refers to a plan in which Corning expects to add more than $3 billion in annualized sales over the 2024-2026 period.

The plan was referenced in the first-quarter 2024 results, but not by name. The name Springboard appeared in its July 8 guidance, and it listed what it calls the Three Core Components:

Chief executive officer Wendell Weeks said in the Q2-2024 earnings results, "Because of our confidence in Springboard, we began buying back our shares in the second quarter. We're energized by the tremendous opportunity for value creation we've built for our shareholders."

At the close of trading on September 13, its shares traded at $42.50, and it had a market cap of $36.37 billion.

Corning reported in the 10-K that it competes with "many large and varied manufacturers." It goes on to say that it tries to maintain and improve its market position through technology and product innovation. Competitors are listed by segment:

Regarding competitive advantage, and in addition to the statement above, Corning has stated, "For the foreseeable future, our competitive advantage lies in our commitment to research and development, deep customer relationships, reliability of supply, product quality, superior customer service and technical specification of our products."

On a segment basis, it argued in the 10-K that it has specific competitive advantages:

But do these advantages provide a moat of any kind?

We'll assess by reviewing its margins and returns on common equity with those of CommScope, Nippon Electric Glass, NGK Insulators, and Thermo Fisher Scientific (the latter belongs in the Healthcare sector, while the others are Information Technology sector stocks):

Except for Thermo Fisher, all four stocks and the IT sector medians have medium single-digit margins and returns on equity. Based on that, I would argue these firms have only narrow moats.

Corning released its second quarter 2024 results on July 30. Its EPS of $0.47 met estimates, and revenue beat estimates by $25.95 million. Other results included:

In the release, CEO Weeks said, "Our strong second-quarter results exceeded the guidance we provided in April and marked a return to year-over-year core sales and EPS growth. The outperformance was driven primarily by the strong adoption of our new optical connectivity products for generative AI, which drove record sales in the Enterprise portion of our Optical Communications business."

Given the declines in net income and EPS, why does the company's sound so bullish? Mostly because of the difference between GAAP and what it calls "core" metrics (after adjustments to exclude some currency effects; see its definition in the 10-K):

Corning pays a dividend yielding 2.64% with the share price at $42.50, as it was on September 13. That is almost double the S&P 500's current yield of 1.42%.

The annual dollar amount is $1.12 and the payout ratio is 66.27%.

It has a five-year growth rate of 7.50% and has increased every year for the past 13 years, whereas the sector median is just 1.1 years.

According to CEO Weeks, Corning "began buying back our shares in the second quarter." However, the financial data published by Seeking Alpha shows the company bought back 1.1 million shares in Q1-2024 and 3.8 million in Q2-2024.

As the following 10-year chart shows, Corning's revenue, EBITDA, and net income began falling off a cliff in the second quarter of 2022. In the second quarter of this year, there are signs the slump may be over:

Management, of course, is bullish about the future, but there are external sources with much the same message. Citi Research included Corning on its September 9 list of buy-rated, mid-cap tech stocks that have expected total returns of over 15% and positive 2024 EPS consensus estimates. It expects Corning's total return for this year to be 23.6%.

The Mizuho Financial Group, Inc. (MFG) upgraded Corning from Neutral to Outperform on August 21. Analyst John Roberts said, "We are upgrading Corning Incorporated to Outperform ahead of the upcoming Sept. 19 review of its Optical glass fiber business and following the recent pullback in the stock, as we're aware of no overall slowdown in the company's business and growth programs."

And Deutsche Bank raised its rating from Hold to Buy on July 31. Analyst Matt Nikman wrote, "The drivers here are twofold, and include generative AI, with very strong uptake of Corning's newer optical connectivity products for GenAI. A ramp in carrier activity (fiber deployments), following a prolonged 'digestion' phase, dampened by elevated inventory levels in recent periods."

In the Q2 earnings release, the company offered a Q3 outlook, in which core sales would grow to about $3.7 billion, while core EPS would range between $0.50 and $0.54. Core EPS in Q2 was $0.47.

Wall Street analysts see significant, double-digit EPS growth ahead, and not just for this year:

Despite the repeated and dramatic rise and fall of revenue, EBITDA, and net income (as we saw above) over the past decade, Corning's share price has been relatively stable:

Indeed, investors have been positively bullish since the third quarter of 2023.

That might have led to overvaluation, and that's what we see in this excerpt from the Seeking Alpha valuation table:

But overvaluation should not automatically lead us to overlook Corning. Instead, we should focus on its potential earnings growth over the next couple of years. As we saw in the EPS estimates, analysts expect double-digit earnings growth this year and for the next four years. Nine of them have issued Up revisions, while five have given Down revisions.

For most of the past 10 years, the share price and normalized diluted EPS have been on the same path:

If this year's EPS growth estimate is 12.36% and next year's estimate is 18.94%, the average of the two is 15.65% (two quarters remaining this year and two next year before September 13, 2025).

Adding 15.65% to the September 13, 2024 price of $42.50 gives me a one-year price target of $49.15. That sees more upside than the Wall Street analysts' average one-year target of $43.52, a 2.40% increase.

Based on my estimates of current overvaluation and 15.65% growth in earnings and the share price, I rate Corning a Buy. One other Seeking Alpha analyst has posted a rating in the past three months, a Hold. The Quant system also generates a Hold, while the Wall Street analysts have a collective Buy, based on seven Strong Buys, one Buy, six Holds, and one Sell.

Management writes in the 10-K that its profits and operating cash flow depend largely on the profitability of its display glass business. And that business is subject to pricing pressure, exchange rates, industry competition, potential overcapacity, the threat of new technologies, and regulatory risks.

Its customer base is concentrated. At the end of 2023:

Corning relies on its patents and trade secrets laws, along with trademarks, confidentiality procedures and other methods to protect its intellectual property. Failure to protect them could have serious operational and financial implications.

The company operates globally, and as a result, has geopolitical and currency exposures. It engages in currency hedging, and there is a risk that counterparties to its derivative contracts could fail. There is also risk in its global supply chain.

Its innovation model means it needs highly specialized experts in glass science, ceramic science, and optical physics. The loss of current employees engaged in R&D or the inability to recruit new employees in this area could have an adverse effect on operations and financial performance.

For long-term investors in Corning Incorporated, there appears to be an end of dimming fundamentals and the real prospect of higher earnings and share prices for several years.

With strong demand for its generative AI connectivity products and its Springboard framework, it has the potential to deliver mid-teens earnings growth over the next four years. And since the price has generally followed earnings, investors could see significant capital gains.

I see a one-year price increase of 15.65% and rate Corning a Buy.