Corning (GLW) Boosts Fiber Production for AT&T Coverage Expansion

Corning Incorporated GLW has extended its long-term partnership with AT&T Inc. T by committing to invest $150 million in its Catawba County facility in North Carolina to augment fiber production. In addition to generating about 200 jobs initially to boost regional economic development, the investment is likely to help AT&T increase its fiber footprint across the country and scale up its broadband network connectivity.

The Optical Communications segment of Corning is headquartered in Charlotte, NC. It operates several manufacturing facilities in this southeastern state, including cable facilities in Hickory, Newton and Winston-Salem, and optical fiber facilities in Wilmington and Concord. With an in-depth understanding of local markets and regional demographics, the company intends to invest in its fiber infrastructure to increase production and address the demand-supply imbalance.

A surge in demand for broadband connectivity has led to a wide proliferation of fiber infrastructure throughout the country and carriers like AT&T are aiming to significantly increase their fiber coverage to gain a greater pie in the market. An integrated fiber expansion strategy is expected to improve AT&T’s broadband connectivity for both enterprise and consumer markets, while steady 5G deployments are likely to boost end-user experience. The carrier intends to achieve this objective by leveraging its long-term business association with Corning spanning over three decades and gain a competitive edge in the fiber industry, which is probably in the early stages of a major growth cycle.

Corning is arguably one of North Carolina’s flagship manufacturers and the current investment project will be facilitated by a Job Development Investment Grant approved by the state’s Economic Investment Committee. Multiple factors are likely to drive the company’s fiber-optic solutions business over the next several years, primarily the increasing use of mobile devices that require efficient data transfer and efficient networking systems. Supporting this trend is the proliferation of clouds, which is resulting in increased storage and even computing on a virtual plane. Since both consumers and enterprises are using the network more, there is a tremendous demand for quality networking. As optical networks are more efficient and most of the existing networks are copper-based, the demand for optical solutions is particularly strong. Corning has several products focused on the datacenter with a portfolio consisting of optical fiber, hardware, cable, and connectors that helps it to create optical solutions to meet evolving customer needs.

Notwithstanding challenging macroeconomic conditions associated with the COVID-19 pandemic, Corning expects to witness 6-8% compound annual sales growth and 12-15% compound annual earnings per share growth through 2023 while investing $10-$12 billion in research, development & engineering, capital, and mergers and acquisitions. It plans to expand its operating margin and return on invested capital and deliver $8-$10 billion to shareholders, including an annual dividend per share increase of at least 10%. To achieve its goals, the company expects to add an incremental $3-$4 billion in annual sales and improve profitability by the end of 2023. The company is extending performance under its 2020-2023 Strategy & Growth Framework, and focusing on improving its product portfolio and utilizing financial strength to enhance shareholder returns.

The stock has gained 16% over the past year compared with the industry’s rise of 26.9%.
 

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We remain impressed with the inherent growth potential of this Zacks Rank #3 (Hold) stock. A couple of better-ranked stocks in the industry are Ooma, Inc. OOMA and SeaChange International, Inc. SEAC, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ooma delivered an earnings surprise of 55.2%, on average, in the trailing four quarters.

SeaChange International has a long-term earnings growth expectation of 10%. It delivered an earnings surprise of 28.9%, on average, in the trailing four quarters.

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