RBC Upgrades Corning, Says It Has 'Stronger Gorilla Long-Term'

In a report published Tuesday, RBC Capital analyst Mark Sue upgraded the rating on

from Sector Perform to Outperform, with a price target of $26, based on the company's strong cash returns, improvements in EPS growth in CY16, greater Optical scale and the awaited 4K upgrade cycle. "With a larger slew of attractively priced 4K sets to arrive this fall, Corning may increase its 25M unit 4K forecast for this year. We see the price differential between regular and 4K (1.5x) reducing further and expect positive retail data-points in the fall as retailers increase inventories in 3Q," Sue stated. The analyst also expects the Optical segment to see high single digit growth during CY15. The segment is focused on attractive markets, such as wireless, datacenter and FTTH. Total revenues are likely to grow to 30 percent in CY15. There are several smaller companies that could prove to be potential acquisition targets for the company, given the growth expectations for the Optical business. However, the weaker Yen has been benefiting Corning's competitors. "If the Yen stays elevated at ¥125 in 2018, further hedging, possible pricing in USD, or price increases are options," the RBC Capital report said. In addition, the analyst believes that the company's new 0.4mm Eagle XG Slim showcases Corning's focus on efficiencies and innovation, "the result being higher throughput, lower costs and higher GM's relative to competitors."