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Will Higher Optical Revenues Buoy Corning (GLW) Q2 Earnings?

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Corning Incorporated (GLW - Free Report) is scheduled to report second-quarter 2018 results before the opening bell on Jul 25.

In the last reported quarter, the company delivered a positive earnings surprise of 3.3%. Notably, Corning surpassed the Zacks Consensus Estimate for earnings in each of the last four quarters, with an average beat of 4.4%.

The company is likely to report higher revenues in the quarter backed by healthy growth dynamics. Whether this can result into an earnings beat remains to be seen.

Factors to Consider

During the second quarter, Corning completed the acquisition of significantly all of the Communication Markets Division from 3M Company. The buyout has enhanced the company’s Optical Communications’ market reach and access to global customers particularly in key growth areas in Europe, the Middle East and Asia, the Central and Latin America regions.

During the quarter, Corning’s manufacturing facility in Kaiserslautern, Germany produced its one millionth Corning DuraTrap GC gasoline particulate filter for automotive emissions control, marking an important milestone for its Environmental Technologies business. The engineering of these ceramic particulate filters was initiated to help automobile manufacturers meet the Euro 6d emissions standard and capture the growing European market demand for emission-controlled automobiles. Continued demand for such high quality automotive filters is likely to replicate in higher revenues for the quarter.

Top-Line Expansion

Corning expects second-quarter pricing environment to remain favorable. The company further expects the LCD glass market to grow mid-single digit as television screen size growth continues. The Zacks Consensus Estimate for net sales from the Optical Communications segment, which accounts for the lion’s share of total revenues, is currently pegged at $1,008 million, up from $882 million reported a year ago. Healthy revenue growth from this segment is likely to be led by committed customer demand and production capacity ramp up.

For the second quarter, net sales from Display Technologies are expected to be $742 million compared with $748 million reported in the year-ago quarter. Net sales from Specialty Materials are estimated to fall to $313 million from $337 million reported in the previous-year quarter.

While net sales from the Environmental Technologies segment are expected to increase to $307 million from $263 million in the prior-year quarter, net sales from Life Sciences is pegged at $232 million. Consequently, for the second quarter, the Zacks Consensus Estimate for total revenues stands at $2,678 million, up from $2,590 million reported in the year-earlier quarter. Adjusted earnings per share are pegged at 37 cents, down from 42 cents reported a year ago.

What Our Model Says

Our proven model conclusively shows that Corning is likely to beat earnings this quarter as it possesses both the two key components. 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. This is exactly the case here as you will see below:  

Earnings ESP: Corning’s Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +1.37%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.   

Corning Incorporated Price and EPS Surprise

Zacks Rank: Corning has a Zacks Rank #2. This increases the predictive power of ESP and makes us reasonably confident of an earnings beat.

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

Other Stocks to Consider

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

Peabody Energy Corporation (BTU - Free Report) has an Earnings ESP of +14.08% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Navient Corporation (NAVI - Free Report) has an Earnings ESP of +2.62% and a Zacks Rank #2.  

Hubbell Incorporated (HUBB - Free Report) has an Earnings ESP of +1.97% and a Zacks Rank #2.  

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