We’re Buying More on Earnings Weakness

Shortly after the opening bell, our investment strategy will involve acquiring 220 shares of Corning (GLW) at approximately $83. This strategic maneuver will increase our holdings to 440 shares, elevating its portfolio weighting from 0.5% to approximately 1%. Corning is currently experiencing a premarket dip of over 7% following its third-quarter earnings report.

The earnings report, broadly speaking, surpassed expectations. Core sales demonstrated robust growth, climbing 14% year-over-year to $4.27 billion, slightly exceeding the consensus forecast of $4.22 billion. Similarly, core adjusted earnings per share (EPS) of $0.67 edged past the consensus estimate by a penny. The company’s Q4 guidance further fueled optimism, projecting revenue of $4.35 billion, exceeding the $4.25 billion consensus, and core adjusted EPS within a range of 68 to 72 cents, above the 67-cent consensus.

So why the market’s seemingly adverse reaction? One factor could be the magnitude of the earnings beat. It wasn’t as pronounced compared to previous quarters, ending a two-quarter streak of core EPS exceeding the high end of guidance. Furthermore, investors might be reacting to a slight revenue miss within the Optical Communications segment. While sales in this segment witnessed significant growth of 33% year-over-year and 5% sequentially, reaching $1.65 billion, it fell short of the $1.71 billion consensus forecast. This initial underperformance might lead some to question the immediate profitability of Corning’s involvement in generative AI applications.

However, we maintain a contrary perspective. The Optical Communications segment is strategically divided into two key areas: carrier network (telecommunications) and enterprise network. The latter presents the most compelling opportunity, as Corning’s fiber products are increasingly integrated into hyperscale data centers. This is a central pillar of our investment thesis. The impressive 58% year-over-year growth in Optical Communication’s enterprise sales, outstripping the segment’s overall 33% growth, reinforces the momentum and validity of our thesis.

When initiating our position last week, we intentionally started with a smaller allocation to retain the flexibility to increase our holdings during a pullback. We anticipated positive quarterly results, but acknowledged the potential for a muted market response given the stock’s substantial year-to-date performance. Corning shares have appreciated considerably since our initial purchase at $85, peaking near $90 on Monday, before retracing to approximately $84 in Tuesday’s premarket trading.

Considering the sustained positive trends in its AI-related business, robust sales in its Specialty Materials segment (which supplies glass for leading smartphone displays), and the ongoing execution of its “Springboard” plan aimed at boosting sales and margins, we view this pullback as a strategic buying opportunity. This correction aligns with our expectations and provides an attractive entry point to strengthen our conviction in Corning’s long-term growth potential.