Thursday September 20, 2012
by Charles Mizrahi, editor Hidden Values Alert
Robust sales for Apple's new iPhone 5 could mean big things for the bottom line at Corning Inc. (GLW), a stock we own in our model portfolio.
Although Corning can’t disclose that they are the supplier of display, it’s an open secret that the iPhone 5 will ship with Gorilla Glass 2.
Gorilla Glass is engineered for thinness, lightness, and damage resistant. It was used for the first iPhones and now the next generation, Gorilla Glass 2, will be in the iPhone 5. It's also 20% lighter and stronger than the original, and is more sensitive to touch.
Corning’s fortune rides in tandem with iPhone 5’s sales. So far, the reception to the iPhone 5 has been tremendous.
We won’t get our first real glimpse of sales until the end of September, but from the way it looks, Apple shouldn’t have much trouble meeting or exceeding analysts’ projections.
Corning is currently trading at only 9x trailing earnings. The company is generating mountains of free cash flow. Much of the capital expenditures that go into building plants to manufacture Gorilla Glass, have already been spent.
Over the next five years, Corning has indicated that they will sell a lot more glass and will not need to build more capacity to meet the demand—Corning will not need to invest much of their capital back into their business.
As of the latest quarterly earnings report (2Q12), Corning hds $6.3 billion in cash on their balance sheet, generated $1.1 billion in free cash flow over the past year, and has a share buyback in place.
A larger screen for the iPhone 5 with all indications pointing to record sales means that Corning will be selling Apple a lot of Gorilla Glass over the next few months.
In addition to rumors of a new iPad mini, which will drive the demand for more glass, Gorilla glass is used in more than 20% of mobile handsets worldwide—approximately 200 million units.
Learn more about this financial newsletter at Charles Mizrahi's Hidden Value Alert.