Corning (GLW) shares are trading lower this morning after Jefferies analyst George Notter cut his rating on the stock to Hold from Buy, while reducing his target on the stock to $18.25, from $24. Notter writes in a research note that after conversations with industry contacts this week, he has concerns about a “supply chain correction.”
Notter reports that “based on anecdotes and conversations with industry contacts, we now believe there’s too much inventory out there at the TV manufacturer and panel supplier levels.” He notes that the company on its most recent earnings call said that inventory levels in the supply chain has picked up to 18.5 weeks from 16 weeks; but the analyst ads that “the weight of the evidence shows a more significant inventory issue than Corning is suggesting.” He points out that LCD panel prices fell 7%-10% in early August, “much more” than he had expected.
While GLW is statistically cheap at 7.8x estimated 2011 EPS, he notes that the stock could “languish a bit more” given how the stock has performed in previous period where there were supply chain issues. He contends that “the shares probably can’t work for awhile as investors work through ongoing data points about a potential supply chain correction in coming months.”
Notter cut his 2010 EPS estimate to $2.08 from $2.15, on lower sales and margin assumptions for both the company’s wholly owned glass business and for its joint venture with Samsung. “We recognize that
current supply chain issues are shorter term in nature,” he writes. “Moreover, our larger thesis on Corning still hasn’t changed � based on our prior analysis of global TV penetration rates, we believe that the size and trajectory of LCD TV market will ultimately be larger than investors expect. Also, we still think our model is still on the conservative side regarding potential Gorilla Glass sales in 2011.”
But for now, he suggests stepping away from the stock.
GLW this morning is down 28 cents, or 1.8%, to $15.75.
No comments:
Post a Comment