Why Corning Stock Keeps Going Up
Key Points
Verizon announced Tuesday that it will buy 80 million miles of fiber optic cable from Corning.
At $1 per foot, the contract could be worth hundreds of billions of dollars to Corning over the next few years.
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Corning Incorporated (NYSE: GLW) stock scored its fourth straight day of gains Wednesday, rising 2.4% through 11 a.m. ET -- and adding to a surge in price that's put the stock up 18% over the past week.
You can thank Verizon (NYSE: VZ) for that.
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Verizon + Corning: better together
Most of Corning's stock gains came on Tuesday, when Verizon announced it had struck a multi-year, multi-billion-dollar supply agreement to order more than 80 million miles' worth of fiber-optic cable from Corning for its network.
Precisely how many multi-billions of dollars we're talking about here isn't exactly clear. Still, the duration of the supply agreement -- 2027 through 2032 -- means that whatever the number is, you'll want to divide it by five or six to figure out the annual boost to Corning's revenue.
According to data from Discount-Low-Voltage.com, Corning fiber-optic cable is typically priced at about $1 per foot (although some other sources suggest a higher price). Taking $1 per foot as a benchmark, a supply contract for 80 million miles of fiber optics implies a total value of more than $420 billion.
What it means for Corning stock
Even divided by five or six years, that sounds like a lot of money for Corning -- potentially several times more than the company's current annual revenue stream of $20 billion.
While I'd much prefer to see a firm figure for the price Verizon is getting for so much cable before coming to a conclusion, the potential for this contract to become transformative for Corning seems clear.
Even at an apparently pricey valuation of 76.5 times trailing earnings, Corning stock might now be a buy.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Corning. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
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