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Today, a large volume of in-the-money (ITM) call options in Corning Inc. (GLW) stock traded, highlighting its underlying value. The optic fiber company has attracted value investors with its strong free cash flow (FCF) results.
GLW is at $48.59 in midday trading on Wednesday, March 19, well off its recent high of $54.25 on Jan. 24, just before its Jan. 29 Q4 earnings release. However, GLW stock is up from its recent low of $44.91 on March 11. Based on its strong free cash flow (FCF) results, it could have much more to go.
The stock is becoming a favorite of value investors. After all, GLW has a 2.30% dividend yield and a forward price/earnings (P/E) multiple of between 17.3x and 20x between this year and next.
Unusual Call Option Volume
A Barchart report today shows that investors have piled into GLW in-the-money (ITM) call options expiring in the next month. The Barchart Unusual Stock Option Activity Report shows that the April 17, 2025 expiration period shows that the $48.00 strike price calls have had a large volume of activity - over 39x the prior number of call options outstanding.
So why is there is so much interest in GLW stock? Let's look at that.
Strong FCF Leads to Higher Target Prices
Corning produced $1.25 billion in FCF in 2024, representing a 42% gain year-over-year. That represented an excellent margin of 9.5% of its $13.1 billion in sales for the year.
In addition, its Q4 FCF result was $409 million, representing an even higher margin of 11.7% of its Q4 sales of $3.5 billion.
That has good implications for the stock's valuation. For example, if Corning can generate 11% of expected sales this year, its FCF could rise 37%:
$15.55 b est. sales 2025 x 0.11 = $1.71 billion 2025 FCF ;
$1.71b 2025 FCF/ $1.25b FCF 2024 = 1.3684 = +36.8%
Moreover, for 2026 analysts expect sales to rise to $16.76 billion. So, using an 11% margin, FCF could theoretically hit $1.844 billion. So, on average over the next 12 months (NTM) the run rate FCF could be $1.7768 billion.
As a result, its possible that GLW's valuation could be significantly higher over the next 12 months. For example, right now Corning stock has a $41.6 billion market valuation. That means that its 2024 $1.25 billion FCF represents 3.0% of its market cap - i.e., a 3.0% FCF yield.
Therefore, using our NTM FCF forecast, we can set a future target price:
$1.7768 billion FCF / 0.03 = $59.2 billion
That is +42% higher than today's $41.6 billion market cap. In other words, GLW stock could potentially be worth +42.3% more, or $69.14 p/sh.
Just to be conservative, let's use our 2025 FCF forecast:
$1.71b / 0.03 = $57.0 billion = +37% higher
In other words, GLW has a target price of $66.56 p/sh.
Moreover, analysts tend to agree. For example, Yahoo! Finance shows that 14 analysts have an average price of $55.69 and Barchart's mean survey is $57.33 per share.
The bottom line is that GLW stock looks cheap here and that could be why investors are buying large volumes of in-the-money call options expiring in one month. (Investors should carefully review the risks associated with calls by going to the Barchart Options Learnings Center pages).
On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
