On Thursday, Citi upgraded Owens Corning (NYSE: NYSE:OC) stock from Neutral to Buy, also raising the price target to $191 from $178.
The upgrade was attributed to promising developments in the company's Composites, Roofing, and Doors segments, which are expected to outweigh potential challenges in the Insulation sector.
The firm anticipates positive earnings revisions for the fiscal years 2024 and 2025, projecting figures that are mid-single-digit percentage points above consensus estimates.
The analyst noted the valuation of Owens Corning (NYSE:GLW) as compelling, citing a 6.5 times next twelve months (NTM) EBITDA ratio compared to the five-year average of 6.7 times. Owens Corning's return on assets (ROA), return on equity (ROE), and return on invested capital (ROIC) were highlighted as comparable or superior to peers within the Building Products sector. The company has a strong track record of converting over 100% of its free cash flow and consistently returns cash to shareholders.
The raised price target to $191 assumes that Owens Corning should trade at 7.5 times EBITDA in the NTM. This expectation is based on anticipated improvements in profitability and synergy realization following the acquisition of DOOR, the disposal of glass reinforcements, updated mid-cycle EBIT margin guidance for Insulation, and market share gains in adjacent composites markets. Notable mentions included Decking and OC Lumber among other products.
Owens Corning's diverse end-market exposure, which includes residential and commercial sales, is seen as a buffer that somewhat insulates earnings from market volatility.
The company's sales distribution is estimated to be around 40-45% from repair and remodeling (R&R), 20-25% from new residential construction, 20% from commercial and other sectors, and approximately 15% from industrial and other non-residential sectors.
The company is scheduled to report its second-quarter results on August 6, before the market opens. Citi has adjusted its second-quarter earnings estimate to $4.36, up from the consensus of $4.28, reflecting the recent DOOR acquisition completed on May 15, and stronger performance in the Roofing and Composites segments, despite more conservative assumptions for the Insulation division.
In other recent news, Owens Corning has seen significant developments. Loop Capital has maintained a Buy rating on the company's stock and increased the shares target to $215, following a series of investor meetings with the company's CFO, Todd Fister.
The company has also completed the acquisition of Masonite International (NYSE:DOOR) Corporation, which is expected to generate strong free cash flow and expand its portfolio of branded residential products.
In response to these developments, Goldman Sachs (NYSE:GS) reinstated its coverage on Owens Corning stock, assigning a Neutral rating with a price target set at $187.00. Meanwhile, RBC Capital updated its financial estimates for the company following the acquisition, leading to a raised price target on the company's shares from $192.00 to $201.00.
Owens Corning's earnings per share for the fiscal year 2024 have been slightly reduced to $14.86, accounting for increased expenses related to the acquisition. However, RBC Capital anticipates earnings per share to increase to $15.70 in fiscal year 2025.
The company's strategic initiatives and recent expansion through acquisition are set against a backdrop of market uncertainty, particularly in sectors closely tied to housing and construction.
InvestingPro Insights
As Owens Corning (NYSE:OC) garners a bullish outlook from Citi, real-time data from InvestingPro complements the analysis with a robust financial picture. The company's market capitalization stands at a solid $14.49 billion, and its P/E ratio, adjusted for the last twelve months as of Q1 2024, is attractively positioned at 11.62. This valuation metric suggests potential for investors seeking reasonably priced earnings growth. Additionally, Owens Corning's dividend yield as of 2024 is 1.44%, with a notable dividend growth of 15.38% in the last twelve months, reflecting a commitment to shareholder returns that has persisted for over a decade.
InvestingPro Tips highlight that Owens Corning has not only raised its dividend for five consecutive years but has also maintained dividend payments for 11 consecutive years, signaling a stable and shareholder-friendly fiscal policy. Furthermore, the company's cash flows can sufficiently cover interest payments, which is crucial for maintaining financial flexibility and enduring market fluctuations. These aspects of financial health are essential for investors considering the stock's long-term value.
For those looking to delve deeper into the financial intricacies of Owens Corning, additional InvestingPro Tips are available. Investors can access these insights and more by visiting https://www.investing.com/pro/OC. Remember to use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, which includes a total of 10 additional InvestingPro Tips to guide your investment decisions.
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