Each Inch Average TV Screen Size Increases, Corning Gets 7-9 Cents of Earnings

Although Corning Incorporated GLW has reduced its global LCD TV unit growth estimate from 2 percent y/y to 1.5 percent, LCD screen size has a greater impact on revenue and EPS, Citi’s Stanley Kovler said in a report. He initiated coverage of the company with a Buy rating and a price target of $23.

Size Does Matter

“We believe sentiment in Display has turned too bearish into a seasonally stronger 2H, and note that screen size matters more than LCD TV unit volume,” analyst Stanley Kovler commented. He explained that a 1-inch variation in average LCD TV screen size equated to an impact of 7-9 cents on annual EPS, while a 1 percent change in LCD volumes impacted EPS by merely 1-2 cents.

Cash Return Provides Support

Corning’s businesses, especially Display Technologies, which is the largest division, have significantly decelerated over the past 18 months. Kovler mentioned, however, that the company’s cash return would become the focus with the Street incorporating the incremental $2.5B being added to the buyback plans.

The analyst modeled 2017 and 2018 EPS estimates at $1.64 and $1.76, above the current Street expectations of $1.58 and $1.72, respectively, on higher buybacks.

“We also believe Optical division revenue has upside in 2H’16 / 2017 from investments by Telcos and from Corning’s increased penetration in data centers,” Kovler wrote.