Corning: Goldman Ups Rating To Buy From Hold; Sets $16 Target

“We expect Q4 to mark the company’s return to positive EPS growth for the first time in two years as a result of stabilizing LCD fundamentals following several quarters of supply discipline,” she writes in a research note. “We estimate Corning will reduce its dependence on LCD glass to 74% of net income in 2013 from 96% in 2009, with its other segments helping to drive mid-to-high single-digit growth in the next two years. Given a 20% decline in capex in 2012 and 2013, Corning’s FCF [free cash flow] yield will likely increase to 6% from 4% in 2013. Thus, we view the stock’s below-book valuation as very attractive.”

The Goldman analyst lifted her 2012 EPS forecast to $1.30 from $1.29; for 2013 she now sees $1.43, up from $1.39; and for 2014 her new projection is $1.50, up from $1.46, all driven by stronger LCD glass sales. Jankowski notes that Taiwan LCD panel sales in August reached their highest level in 17 months. She also has revised her earnings model to show higher margins on Gorilla Glass on improved utilization and higher yields.

Over time, she expects P/E expansion on Corning shares based on a return to positive earnings growth – and she thinks the company will use improving cash flow to boost the dividend on GLW shares, which now yield 2.4%, and to buy back more stock.

GLW this morning is up 39 cents, or 3.1%, to $13.12.