Lab Deal Adds Life to Corning's Glass House (Update 1)
(Corning deal story, updated to include analyst comment and financial data)
NEW YORK (TheStreet) -- Corning(GLW) , the world's largest supplier of glass for flat-panel television sets, is continuing to diversify into the life sciences business, buying the majority of Becton Dickinson's(BDX) laboratory products unit, called Discovery Labware, for $730 million in cash. Corning is banking on growth in its life sciences division as a way to drive overall revenue to $10 billion over the next few years.
The diversification by way of deal-making couldn't come at a better time for Corning as pressures in the glutted LCD market intensify. A drop in demand for flatscreen TVs, a core earnings driver for Corning, resulted in electronics giant Sony(SNE) announcing a record loss on Tuesday. Also on Tuesday, LCD TV maker Sharp increased its annual loss forecast to $4.67 billion.
In 2011, profits at Corning's display technologies unit fell over 20% to $2.3 billion, driving overall profits down by roughly the same amount, even as revenue increased to a record $7.9 billion.
Corning expects that Discovery Labs will add roughly $235 million in revenue to the company's Corning life sciences division, growing revenue by 40% to over $800 million in 2012 and to $1 billion by 2014.
The move may help Corning achieve its revenue forecast in coming years through a mix of acquisitions and organic growth, but just as important in the deal is adding to the company's longer-term cash flow profile, says an analyst.
"Although short-term investors will likely focus on the net negative impact to free cash flow for 2012, we believe longer-term investors will consider the impact to free cash flow in 2013 and beyond," notes Sterne Agee analyst Andrew Huang, who rates shares a buy with a $16 price target.
Corning said that Tuesday's move will add to earnings per share in 2013 and will benefit earnings by 5 cents in 2016, when the integration is expected to be completed. Corning also said it will maintain a share repurchase program and will consider adding to dividends, even as it invests in growth in coming years.