Owens Corning a Strong Sell on Dampened Outlook

Zacks Equity Research

On Jun 27, 2014, Zacks Investment Research downgraded Owens Corning (OC) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Owens Corning, the global producer of glass reinforcement witnessed substantial downward estimate revisions over the last 7 days after it lowered the full year 2014 outlook last week due to soft volumes in the roofing business.

Owens Corning estimates that roofing volumes for the first half of 2014 will be 20% lower than the year-ago level because of slow growth in the homebuilding sector.  Moreover, the company also fears that there is potential slump in housing demand resulting in lower new home sales and less re-roofings for numerous factors, such as rising interest rates, lower consumer confidence, higher unemployment, low real wage growth, rising housing prices and many others.

The Ohio-based company expects that adjusted EBIT for the second quarter will be lower than $500 million announced during the first-quarter conference call. However, it will be higher than the year-ago level of $416 million.

Owens Corning experienced weakness in roofing volumes during the first quarter of 2014 reported in Apr 2014.  The soft volume continued through April and May. Given the continued weakness in the roofing volumes, Owens Corning has become skeptical regarding the full-year financial outlook of the roofing business.

In fact, we do not expect volumes to improve in the second quarter, scheduled to be reported on Jul 23. However, the company expects to recover a portion of this volume shortfall in the second half of the year through the insulation and composites businesses.

In the first quarter of fiscal 2014, Owens Corning reported lower-than-expected earnings and sales due to weak roofing business. The company’s soft results triggered a downtrend in the Zacks Consensus Estimate, as analysts became concerned regarding the stock’s future performance. The Zacks Consensus Estimate fell 9.6% to 47 cents per share for second-quarter fiscal 2014 and declined 2.0% to $2.88 per share for fiscal 2014, in the past seven days.

Other Stocks That Warrant a Look

Some better-ranked stocks in the building and construction sector include United Rentals, Inc. (URI), The New Home Company LLC (NWHM) and Gibraltar Industries, Inc. (ROCK). All these stocks sport a Zacks Rank #2 (Buy).

Read the Full Research Report on OC
Read the Full Research Report on NWHM
Read the Full Research Report on ROCK
Read the Full Research Report on URI

Zacks Investment Research