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Strategies & Market Trends : Quarter to Quarter Aggressive Growth Stocks -- Ignore unavailable to you. Want to Upgrade?

To: Jack Hartmann who wrote (1878)	2/16/2001 4:31:24 PM
From: Jack Hartmann	Respond to of 6924

SSB on GLW Corning Inc. (GLW)# GLW: NT Suggests Carrier L/H Spend Growth 2H (Outperform, High Risk) Slowing Faster Than Expected In '01 Mkt Cap: $33,924.7 mil. February 15, 2001 SUMMARY * Last night Nortel negatively pre-announced the March TELECOMMUNICATIONS quarter indicating carriers have become even more EQUIPMENT cautious with domestic long-haul capital expenditures Timothy Anderson and are apparently choosing to increase network utilization at the expense of building out fiber and lighting the network. B. Alexander * Nortel was careful to suggest spending on metro Henderson networks and international builds appears solid and unchanged from earlier in the year. * We think this situation is likely to exacerbate the inventory issue facing GLW's photonics business as well as suggests the outlook for long haul fiber sales may have deteriorated modestly since the GLW earnings call in January. * Recognizing GLW has taken a more cautious stance on its 1H outlook, we think some of the negative impact from NT is already built into GLW's share price, but we note visibility has deteriorated increasing the risk in the name. * As a result we are lowering our price target to $55 per share from $90. FUNDAMENTALS P/E (12/01E) 27.8x P/E (12/02E) 22.2x TEV/EBITDA (12/01E) 27.9x TEV/EBITDA (12/02E) NA Book Value/Share (12/01E) NA Price/Book Value NA Dividend/Yield (12/01E) $0.24/0.6% Revenue (12/01E) $11,923.4 mil. Proj. Long-Term EPS Growth 25% ROE (12/01E) NA Long-Term Debt to Capital(a) NA GLW is in the S&P 500(R) Index. (a) Data as of most recent quarter SHARE DATA RECOMMENDATION Price (2/14/01) $38.90 Current Rating 2H 52-Week Range $113.10-$38.90 Prior Rating 2H Shares Outstanding(a) 872.1 mil. Current Target Price $55.00 Convertible No Previous Target Price $90.00 EARNINGS PER SHARE FY ends 1Q 2Q 3Q 4Q Full Year 12/00A Actual $0.23A $0.31A $0.35A $0.34A $1.23A 12/01E Current $0.28E $0.37E $0.38E $0.36E $1.40E Previous $0.28E $0.37E $0.38E $0.36E $1.40E 12/02E Current NA NA NA NA $1.75E Previous NA NA NA NA $1.75E 12/03E Current NA NA NA NA NA Previous NA NA NA NA NA First Call Consensus EPS: 12/01E $1.40; 12/02E $1.74; 12/03E NA NORTEL PRE-ANNOUNCEMENT ADDS TO THE NEAR-TERM WORRIES BEHIND CORNING Last night Nortel negatively pre-anounced the March quarter indicating that relative to earlier in the year, carriers have become even more cautious with their capital expenditures, particularly in domestic long-haul. Nortel indicated carriers are apearantly choosing to increase network utilization at the expense of both lighting the network and building out fiber. However, the company was quick to point out spending on metro networking continues at a solid pace and spending on optical systems in Asia and Latin America continue to show solid strength. The Nortel Pre-Anouncement Lowers The Visiblity Behind Corning In Two Ways. First, we think the slowdown in optical sales at Nortel is likely to exacerbate the inventory correction issue. In our opinion, the correction is likely to take longer increasing the risks to Corning's photonics buisness which is adding capacity at a 600% rate over 18 months. Second, if carriers are moving to better utilize long-haul network capacity by adding more traffic to existing fibers, the implication is new long-haul fiber builds in the U.S. are likely getting pushed out. We would point out the Nortel conference call did not provide enough information to alow us to come to difinitive conlusions, but the outlook for long haul domestic fiber sales may have deteriorated modestly since the GLW earnings call in January. This is consistent with the warnings management gave at that time. Lowering Price Target To $55 Per Share From $90 Per Share. We recognize GLW has taken a more cautious stance on its 1H outlook, and reiterated guidance. We think some of the negative impact from NT is already built into GLW's share price, but this Nortel information increasing the risk in the name, in our view. As a result we are lowering our price target to $55 per share from $90 per share. The new target represents a PE multiple expansion to 39x 2001 earnings, a modest expansion above the current trailing multiple. COMPANY DESCRIPTION Corning Incorporated creates leading-edge technologies for fast-growing segments of the world's economy. Corning is a provider of optical fiber, cable, and photonic products for the telecommunications industry; high- performance glass for computers, television screens, and other information display applications; advanced optical materials for the semiconductor industry and the scientific community; ceramic substrates for the automotive industry; specialized polymer products for biotechnology applications; and other advanced materials and technologies. Jack