Creamed Corning

For the second trading day in a row, Corning (NYS: GLW) tumbled Monday, tripped up by a late-week forecast for weak results at the company's flagship LCD glass division.

Speaking at an investor conference Thursday, Corning CFO Jim Flaws confided that retail demand for LCD TVs is slackening. Glass shipments are expected to flatline in Q3, versus previous expectations of mid-to-high single-digit volume growth. This forecast aligns with what Compal Electronics told us last week -- that in addition to cutting shipments of Hewlett-Packard (NYS: HPQ) , Dell (NAS: DELL) , and Lenovo-brand notebooks (most of which use LCD screens), it's also shipping fewer LCD TV sets.

For the time being, Flaws says Corning "has not changed its third-quarter glass-pricing expectations." Still, when you consider that the sales price per unit of glass shipped has historically tended to fall every year, the effect of such volume weakness could be magnified on Corning's top line. Worse still, Flaws warns that "utilization rates remain low," which suggests that Corning probably isn't earning great margins on the revenues it does collect.

Already, analysts are queuing up to offer downgrades, with Sterne Agee leading the pack, cutting $0.06 off his Q3 earnings forecast and reducing his price target on the stock to $24. Yet as a value-minded Fool, I can't help noticing that even this reduced target is nearly twice the price Corning shares fetch today. Could this be the bargain we've been waiting for?

Corning conundrum
I'm probably the last Fool you'd expect to suggest this, having just finished panning Corning for excessive capex spending and weak free cash flow three months ago. But Corning's price has come down quite a bit since then. When I look at the stock today, I see a company:

  • Generating $1.9 billion in annual free cash flow ...

  • Yet priced at just 11 times FCF.

  • Growing 11.5% per year ...

  • While paying a tidy 1.5% dividend ...

  • And sitting on a $4 billion net-cash cushion.

And I have to admit, I like what I see. At barely 6 times forward earnings, Corning's roughly half the price of the average stock trading on the Dow Jones Industrial Average (INDEX: ^DJI), yet it's growing 20% faster. Post-this year's H2 turbulence, Flaws promises improved operating margins, $10 billion in annual sales by 2014, and reduced capex spending from 2013 on. If he can deliver on these promises, I think I could see myself opening up a can of creamed Corning and dining well.

What surprise news will Corning tell us next time Flaws makes an appearance?Add Corning to your Watchlistand find out.

At the time thisarticle was published Fool contributorRich Smithdoes not own (or short) shares of any company named above.Motley Fool newsletter serviceshave recommended buying shares of Dell and Corning. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.

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