Friday, September 29, 2006

Calls of Note Part 2

- Merrill Lynch reiterates their Buy on Corning (NYSE:GLW), and raises price target back up ($30 from $24). Firm's new target again assumes the shares approach 25X new 2007 EPS estimate of $1.25 (vs. $1.18) or ~1X PEG ratio to 2007 EPS growth, which can also occur in 2008 as LCD TVs penetrate further. Firm ups their 2006 EPS estimate a penny to $1.01. Prior target assumed a lower P/E (~20X) on pricing pressures that have eased. VZ headlines could help but the EPS impact is limited.

The firm is also modeling in troubles at a portion of a competitor's operations (Asahi; ~20% market share vs. ~50-55% at GLW family) to help EPS by a penny per quarter in Q4 and Q1 due to reduced industry pricing pressures and some incremental share gains.

The new 2007 EPS estimates also reflect higher LCD TV estimates that could still be conservative (~65MM TVs vs. a prior estimate of 60MM and 40MM in 2006E). They are most recently encouraged by further TV price declines (down 12% in the past 11 weeks), which are a good leading indicator. Also, the trend toward larger size TVs (which is highly beneficial to Corning given the square meters of glass) could still outpace current expectations. According to firm's LCD tracker, retail prices for LCD TVs are down 21% since the beginning of the year. Lastly, large discounts on 'Tier II' brands could provide another competitive pricing impetus.

Notablecalls: These comments are likely to spur some buy interest in GLW. Would not overstay my welcome as there is nothing really new to be found in the note.

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