Glass substrate maker Corning Inc. (GLW) is looking increasingly appealing to analysts, with Goldman Sachs and Deutsche Bank both issuing upgrades today based on improved prospects for the LCD television market.
Back on Dec 8 Davenport & Co analyst F. Drake Johnstone cut his rating on Corning (GLW) to “Neutral” from “Buy” on a valuation basis. He worried that consumer demand for LCD televisions could wane in the first quarter after the holiday buying surge.
The next, day however, Corning announced continued strength in worldwide LCD television sales had led to an increase in the company’s fourth-quarter glass substrate volume expectations, and an improved outlook on 2010 glass market growth. Two days after that Jefferies &Co initiated coverage on Corning with a “Buy” rating. Analyst George Notter wrote that investors are underestimating the potential size of future LCD panel shipments. Ticonderoga analyst Brian White raised his rating on the stock to “Buy” from “Neutral. Both analysts set a price target of $22.50.
On Dec 22 Barclays Capital’s Christopher Muse wrote that he maintained our aggressive call to buy GLW shares as we continue to see potential upside to the $23 level by mid-2010.
Thomas Weisel’s Ajit Patel on Dec 23 raised his estimate for Corning on signs of strong-sell through of LCD panels and raised his price target to $19 from $17. Analysts at ThinkEquity Partners went further, upgrading Corning from “Hold” to “Buy” with a target of $35. On Jan 4 Citigroup , which has a “Buy rating on the stock, raised its target price to $24. The same day Oppenheimer & Co reiterated its “outperform” rating and raised the target price from $20 to $22. Oppenheimer’s Yair Reiner had lifted his rating to “outperform” and set a $19 price target in August. He said then that the shares had “flat lined” on “concern that Street estimates are not achievable” or that demand will plummet, but “our analysis suggests such anxieties are inflated.” UBS analyst Nikos Theodosopoulos in October upgraded Corning from “neutral” to “buy” with a target 0f $19.
Morgan Keegan on Jan 5 reiterated its “Outperform” rating on Corning and highlighted the stock as its Select Idea for 2010. “Investor concern over an LCD glass demand peak in Q4:09 leading to declines in 2010 is overdone, and we continue to highlight the compelling valuation, with a CY10E PE under 12x on our $1.70 EPS estimate, and fair value near $26 assuming an S&P-like mid-teens multiple.”
Standard & Poor’s on Jan 9 reiterated its “outperform” rating with a target of $21, “based on a multiple of 13X our 2010 EPS estimate, a slight discount to peers that we believe have stronger growth prospects.” Similarly, Zacks as of Jan 7 had an “outperfom” opinion on the stock with a target of $21.30.
Goldman Sachs analyst Simona Jankowski this morning upgraded Corning to “Buy” from “Hold,” with a new target of $23, up from $18, asserting that the LCD cycle likely bottomed in Goldman launched coverage of Corning in September with a Neutral rating and a $17 price target. And Deutsche Bank analyst Carter Shoop today upped his rating to “Buy” from “Hold,” lifting his price target to $24 from $19.
A transcript of Corning’s presentation to the Barclays Technology Conference last month is available here.
For latest analyst comment on Corning see Alacra Pulse.
Technorati Tags: (GLW), Corning, LCD
Moody’s may be regretting singling out Carter’s as an exception to its negative outlook for the apparel industry. Last week ResearchRecap quoted Moody’s as saying:
“A well-executed retail strategy can turn a profit, grow the business, and increase market share. Our upgrade of Carter’s (CRI) rating in September partly reflected the company’s sustained same-store sales growth and margin expansion in its retail business, even in the recession.” [ Analysts at BMO Capital Markets initiated coverage of Carter on Oct 28 with an "outperform" rating. Analysts at Sterne Agee upgraded the company from "neutral" to "buy" on Oct 4.]
Now Moody’s has placed the company on review for possible downgrade.
Carter’s Inc. on Nov 10 announced a delay in its 10-Q filing and restatements of its prior period financial statements, an ongoing review of the company’s treatment of margin support payments, and the nondisclosure of such margin payments to the company’s finance team.
Standard & Poor’s placed Carter’s ‘BB+’ long-term corporate credit rating and ‘BBB’ senior secured debt ratings on CreditWatch with negative implications.
We are concerned about Carter’s ability to remain in compliance with its bank loan covenants and uncertainty surrounding the materiality of any findings in the investigations. – S&P
However, Margaret Whitfield, senior analyst at Sterne Agee & Leach, supports Moody’s underlying view.”The restatement and the filing of the 10 Q may be weeks away, hopefully in December, but it could possibly drag into the New Year,” she said. adding that Carter’s “underlying business is quite healthy and that the issues related to the mark down accommodations which may involve restatements detract from what is going on with the company overall.”
For latest analyst comment see Alacra Pulse.
Technorati Tags: (CRI), apparel, Carter's
Moody’s today reiterated its negative outlook on the US apparel industry “because we expect apparel sales will continue to weaken through the year-end holidays and into 2010, as consumers hold off on discretionary purchases in a still-difficult economy.”
Other Highlights of Moody’s Industry Outlook.
- We don’t expect that holiday 2009 will be as promotional as holiday 2008, because inventories this year should be better aligned with expected demand. However, the consumer has learned that it pays to wait for higher markdowns, and that could pressure retailers to mark down prices more than expected.
- For 2010, we expect retailers will continue to pare back inventory through the first half of the year. This will pressure apparel sales even if consumer demand begins to stabilize.
The consumer continues to show evidence of trading down to more-moderate price points, another headwind for the industry.
- Apparel companies that sell less-discretionary products (such as children’s clothing) will be more resilient, as will companies that have a large presence in international markets (such as the Asia-Pacific region).
- All of this said, we believe that the negative conditions in the apparel industry are moving closer to a bottom; however, even if conditions begin to stabilize, they will likely remain weak for a while, possibly into late 2010
Moody’s said, some companies are doing better than others. “A well-executed retail strategy can turn a profit, grow the business, and increase market share. Our upgrade of Carter’s (CRI) rating in September partly reflected the company’s sustained same-store sales growth and margin expansion in its retail business, even in the recession.” [ Analysts at BMO Capital Markets initiated coverage of Carter on Oct 28 with an "outperform" rating. Analysts at Sterne Agee upgraded the company from "neutral" to "buy" on Oct 4.]
“Another example is Warnaco (WRC) . The company’s continued investment in its Calvin Klein Jeans business is paying dividends, particularly in overseas markets. The company has reported positive revenue growth on a constant-currency basis over the course of 2009, a factor in our decision to move the outlook for the rating to positive from stable.”
Technorati Tags: (CRI), (WRC), apparel, Carter's, holiday retail, Warnaco Group
Guest Post by Fred Wilson, Union Square Ventures.
This morning I was reading a CIBC research report called Heading for the Exit Lane and I’ve been thinking about it for most of the day.
This oil thing sure has legs. Even if we aren’t in a “peak oil” situation (and even the Saudis can’t agree about that), we’ve gotten to a price point where consumer behavior is going to change significantly over the next few years. Over the long term, that’s a good thing. The world economy is addicted to oil, largely because it’s been so cheap for so long. But it’s not cheap anymore and given the pace at which the rest of the world is developing these days, it’s not going to be cheap ever again. Unless we find another source of energy that is a lot cheaper than oil and I am not aware of any developments that will get us there soon.
This has bigtime ramifications for slowing growth and rising prices (inflation). And these impacts will not be limited to the US economy. They will be felt worldwide. The hypergrowth economies of China, India, Brazil, Russia, and other developing economies may not be impacted as much as the more mature economies like Japan, Europe, and most of all the US. Russia, in particular, stands to benefit greatly from the spike in oil prices.
Slower growth and rising prices (inflation) cannot be good for equities. Rising rates, which is what will have to come, will not be good for any kind of financial assets.
Which, of course, leads me to venture capital. The value of your equity in a startup company is a financial asset. It may not be publicly traded but like all other financial assets it is ultimately worth the present value of future cash flows discounted at an interest rate that takes into account market rates of interest plus a risk premium.
We’ve been operating in a world where real interest rates have been hovering around zero (at least in the US). And that has propped up the value of equities and venture capital assets have been part of that prop-up.
All we have to do is look at the 70s to see the effect of low growth and high inflation (stagflation). Here is a chart of the Dow Jones Industrial Average during the 1970s.
Yes, that’s right, the Dow Jones Industrial Average ended the 1970s right about where it started.
I wasn’t in the venture capital business in the 1970s. I was a teenager that decade. I remember Vietnam, Watergate, the oil shocks, the gas lines, Gerald Ford, whip inflation now, Jimmy Carter, the Iran hostage crisis, and Paul Volcker and Ronald Reagan.
The first venture capital firm I worked for, Euclid Partners, was formed in 1971. The two founding partners, Milton and Bliss, raised about $4.5mm in 1971. They didn’t raise another fund until 1983. They strugggled mightily during the 1970s with their portfolio and ultimately made it work when the technology market took off in the early 80s. I heard a bunch of stories from them about that time and it was not an easy time to be an entrepreneur or a VC.
Surely the next 10 years won’t be identical to the 1970s. A lot has changed, particularly the global economic environment. But it’s also clear that the economy we are in (and maybe have been in for the past 18 months) is going to be tougher for owners of financial assets than the past 20 years have been. And I don’t think the startup economy and venture capital is immune to this new reality.
So what should we do about it? Well first, we need to be careful with valuations. If financial assets are going to be subject to downward pressure then inflated valuations will not be sustainable. We need to be careful with the amount of money we invest and burn. Companies that are capital efficient and cash flow positive will fare better in this environment. And we need to be prepared to wait a long time for liquidity.
It’s ironic that the title of the CIBC report is “Heading For The Exit Lane” because I think the exit lane will take longer to find and possibly be less rewarding in the coming years.
A Final Thought: This may mostly be good news for cleantech investors. As oil gets more expensive, cleantech and alt energy technologies can become commercially viable more quickly. But it takes a lot of money, biotech-like capital investments, to get most cleantech investments to profitability. So if the capital markets are going to be more difficult, it’s not all good news for cleantech. And the web clearly has a role to play in all of this too. More on that later.
Technorati Tags: energy, oil, venture-capital
With commodity prices soaring but overall inflation staying relatively low, the IMF has released a new working paper entitled, “Recent Inflationary Trends in World Commodity Markets.”
The paper does not represent the official IMF view. Nonetheless, it presents a dire view of current policy conundrums that governments the world over are facing.
Policy makers may have to face a policy dilemma: maintain monetary policy stance with accelerating commodities price inflation, subsequent world recession, and financial disorder; or tighten monetary policy with subsequent world recession followed by recovery and financial and price stability.
At the center of the problem has been an increase in commodity prices of 23% per annum during the 2003-2007 period. The paper argues that that increase was the “delayed effect of an overly expansionary monetary policy which led to a fast expansion of all types of credits, irrespective of creditworthiness, and to a worldwide strong expansion of demand for real assets, goods, and services.”
“In order to rein in inflation and bring back a measure of stability in commodities and financial markets,” the paper insists, “monetary policy has to be tightened considerably and be directed to strictly controlling credit and money supply.”
In the end, the paper recommends a course similar to that which the Carter administration and other governments pursued in the late 1970s: “If the course of monetary policy is to be corrected, through controlling money supply, interest rates will go up sharply, exchange rates will appreciate, a debt crisis may erupt, and a temporary recession may set in as was the experience in 1979-82. The merit of prudent monetary policy would be to bring back price stability and durable economic growth, as illustrated by episodes during 1980–99.“
Technorati Tags: commodity-prices, inflation, monetary-policy
