Stones and Glass Houses

You can't swing a dead iPhone 4 without hitting a trader or analyst who has a differing outlook on Corning (NYSE: GLW).

Corning manufactures and sells specialty glasses, ceramics, and related materials worldwide. The company operates through five segments: display technologies, optical communications, environmental technologies, specialty materials, and life sciences.

But it's Corning's tight relationship with Apple (NSDQ: AAPL) that's causing a stir among investors this week.

Some say that Apple's recent embrace of Sapphire, which could replace Corning's Gorilla Glass as the cover glass for Apple's next generation of iPhone, is a threat to revenues. That would be a sell trigger for GLW shareholders, they say, as Corning Glass would have trouble replacing the revenue lost from the iPhone deal. (For the record, Apple has made no announcement on Sapphire replacing Gorilla Glass on its iPhones.)

But there is no shortage of Wall Street watchers who say that Corning is a winner, and can withstand any attack on its Gorilla Glass product line.

The analytical firm Argus recently hiked its share price outlook on GLW from $20 to $24, citing an accelerated share repurchase agreement with Citibank. The firm also calls for "double-digit earnings per share growth in 2014 and 2015.

So which is it? Strong share growth based on healthy revenues, or a dip if and when Apple decides to replace Gorilla Glass with Sapphire.?

Let's take a look, and see why the naysayers could be wrong about GLW:

A stronger balance sheet – Corning's call last week for an accelerated share repurchasing program should be a good sign for the firm's share price.

The rollout, which is ongoing now and will end in the second quarter of 2014, will see Corning buy back outstanding shares worth $1.25 billion.

According to company financial statements, the buy back program is par! t of Corning's $2 billion share repurchase program made effective concurrent with the closing of Corning's full acquisition of Samsung Corning Precision Materials Co., Ltd. (now Corning Precision Materials) on Jan. 15, 2014.

"This ASR, coupled with other repurchase activity in the first quarter, essentially offsets the dilution related to the Samsung Corning Precision acquisition and further demonstrates our commitment to creating, enhancing, and returning value to our shareholders," said James B. Flaws, chief financial officer at Corning.

The company has already repurchased 100 million shares of stock, with no set number at the end of Q2, 2014. So far, the company has spent about $1.08 billion in share repurchase funds, but still has a balance sheet worth $5.24 billion, and a strong net cash position of $307 million.

A bullish 2014 outlook – Last month, company chief executive officer Wendell Weeks told analysts and reporters via a conference call that Corning had delivered five consecutive quarters of core earnings-per-share growth, outperforming major competitors, along with its planned announcement to buy Samsung Corning Precision Materials, Co., Ltd. Weeks also said that his firm would funnel cash back to its to shareholders by doubling the dividend payment and repurchasing 13 percent of outstanding shares since October 2011.

"We did what we said we were going to do. We restored earnings growth," Weeks said on the call. "Now we need to create Corning's next growth surge. Fortunately, this is familiar territory to us and we're armed with the right tools."

Weeks cited game changing technologies and products for the company’s upward growth path. "[New tech] transformed industries and created long-term advantages for Corning" through glass ceramics, low-loss optical fiber, and LCD glass substrates, he said. "Our track record also reflects a culture that is committed to research and development—because we understand that our investme! nts in in! novation create Corning's future revenue drivers. And we continue to apply that strategy and philosophy today," Weeks added.

But it's Corning's Gorilla Glass, used as cover glass in 2,400 global products, for 33 major brands (including Apple), that can help sustain the company's growth rate. Major automakers, smartphone developers, and tablet and laptop manufactures still make Corning the go-to specialty glass product on the marketplace.

Operationally, Corning is cutting the cost of making all that by transferring its Gorilla Glue manufacturing site from Japan to South Korea, a move the company says will add $100 million to its bottom line.

The company also says it will add $2 billion in annual sales via its 43 percent stake in Samsung Corning Precision Materials, resulting in about $350 million in new net profits.

Add it all up, and I'm taking a glass half-full approach with Corning, and expect to see the stock rise by 20 percent as all of the above positive elements coalesce in 2014.

Brian O'Connell is an investment analyst at Investing Daily and chief investment strategist of 401k Millionaire. He has appeared as an expert financial commentator on CNN, NPR, Fox News, Bloomberg, CNBC, C-Span, CBS Radio, and many other media broadcast outlets.

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