12:23 PM EDT, 06/13/2024 (MT Newswires) -- Corning's (GLW) current valuation reflects most of the expected near-term gains and some upside from artificial intelligence datacenter-related fiber demand, Morgan Stanley said in a note Thursday.

The current valuation of around 17 times full-year 2025 earnings per share of of $2.20 shows expected service provider improvements in the back half of 2024, reduced risks for 2025 estimates due to hedges and potential price increases in display business, and the anticipated margin growth from the company's expected incremental revenue of $3 billion over the next three years, Morgan Stanley said.

Corning's shares have risen about 25% this year due to improved investor sentiment, better visibility on the Japanese yen impact and potential margin growth from excess revenue capacity, according to the note.

Morgan Stanley said Corning is mitigating 2025 yen exposure risk with new hedges and planned price increases, yet potential impacts on cash flow and earnings remain if the yen weakens further.

AI datacenter expansion offers substantial near-term growth for Corning's optical division, potentially boosting optical revenue by $300 million to $400 million by 2025/2026, however, carrier recovery will be the main upside driver, according to the note.

"While we continue to see GLW as well positioned to post modest upside to results through [2024] as end markets improve from trough demand levels, and acknowledge recent progress towards de-risking [2025] estimates on continued yen weakness, we think these dynamics are captured in investor expectations/valuation," Morgan Stanley said.

The investment firm raised its price target on Corning to $38 from $35 but downgraded its rating to equal-weight from overweight.

Price: 37.61, Change: -0.42, Percent Change: -1.09