Can Corning (GLW) Q2 Earnings Surprise On Product Strength?

Corning Inc (NYSE:GLW) is set to report second-quarter 2017 results on July 26. Notably, the Gorilla Glass (GG) maker has a positive record of earnings surprises in each of the trailing four quarters, with an average surprise of 12.81%.

In the last quarter, Corning delivered a positive earnings surprise of 13.64%. Earnings of 39 cents per share surged 39.3% on a year-over-year basis but declined 22% sequentially in the reported quarter.

Adjusted revenues increased 14.5% year over year to $2.49 billion, which comfortably surpassed the Zacks Consensus Estimate of $2.36 billion. However, revenues declined 2.6% on a sequential basis.

Corning’s second-quarter 2017 guidance is fairly good. Management expects year-over-year growth in revenues and earnings per share (EPS). Glass volume is expected to increase by mid-single digit percentage on a year-over-year basis and low-single digit percentage sequentially. The company expects sequential LCD glass price declines to be substantially less than first-quarter 2017.

In the quarter under review, Optical Communications sales are anticipated to increase 10% from the year-ago period. Further, Environmental Technologies sales are expected to be in line with the year-ago quarter, while Specialty Materials sales are anticipated to increase by a high-teen percentage range. The Life Sciences business will grow low-single digit percentage from the prior-year quarter.

Factors at Play

Corning’s shares have outperformed the S&P 500 index on a year-to-date basis. While the index gained 10.7%, the stock increased 31.3%. The outperformance reflects consistent execution and strong demand for the company’s optical communications as well as Gorilla Glass products.

We believe that strength in the optical communications segment is a key catalyst. Segment sales are expected to grow more rapidly owing to strong demand for fiber products, both from the North American network providers and hyperscale data centers.

The Verizon deal reflects the strength in fiber demand, as U.S.-based service providers overhaul networks to improve 4G coverage and accelerate 5G deployments.

Moreover, the company remains focused on expanding its footprint in the automotive market driven by gas particulate filters (GPFs) and a Gorilla-sized automotive glass business. In fact, Apple’s (NASDAQ:AAPL) decision to invest $200 million in Corning – to create better products – validates the company’s position as a prime manufacturer of glass products for smartphones.

Further, aggressive share buyback in accordance with the strategy & capital allocation framework will also boost bottom-line growth.

However, weakness in the Display segment remains a headwind, which can dent results.

Earnings Whispers

Our proven model does not conclusively show that Corning will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Corning’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 40 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Corning has a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some other companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter.

Cypress Semiconductor (NASDAQ:CY) has an Earnings ESP of +11.11% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

IPG Photonics Corporation (NASDAQ:IPGP) has an Earnings ESP of +3.07% and a Zacks Rank #1.

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