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Owens Corning (OC) Up 31% in 6 Months: More Upside Left?

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Owens Corning OC has been benefiting from market-leading businesses, innovative products and process technologies. Moreover, robust demand for insulating products has been adding to the positives.

Notably, shares of Owens Corning have gained 30.6% over the past six months compared with the Zacks Building Products – Miscellaneous industry’s 19.6% rally. The price performance was backed by a solid earnings surprise history. Owens Corning’s earnings surpassed the Zacks Consensus Estimate in nine of the trailing 10 quarters. Earnings estimates for the second-quarter 2021, full-year 2021 and 2022 have moved up 0.5%, 1.9% and 2.2%, respectively, in the past 30 days. This positive trend signifies analysts’ bullish sentiments and justifies the company’s Zacks Rank #1 (Strong Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Driving Growth

Prudent Initiatives: Owens Corning has implemented several strategic initiatives to drive overall performance. Segments like the Insulation unit, technical and other building insulation businesses are performing impressively, mainly owing to the company’s geographic as well as product expansion through acquisitions. Additionally, in the North American residential fiberglass business, the company is enforcing automation and further investments in process technology to boost manufacturing efficiencies, as well as reduce costs. Also, to expand its global product offerings, Owens Corning continues to invest in new insulation materials and systems in nonresidential applications.

The Composites segment has been generating higher volumes backed by its efforts on higher value applications for glass non-wovens and specific markets like India. For this segment, the company is focused on key markets and geographies like North America, Europe and India, where it has a market-leading position. Moreover, the company is focused on making its composite business the most cost-efficient, mainly through productivity and manufacturing performance.

In the Roofing segment, Owens Corning is leveraging vertical integration, material science capabilities and commercial strength to design as well as market unique roofing shingles and components that attract contractors, homeowners and distributors. For the past two years, the company has been investing additional capital in the roofing business, resulting in increased incremental capacity at many of its manufacturing facilities.

All these initiatives are expected to aid the company gain further in 2021 and beyond.

Inorganic Investments: Owens Corning largely depends on acquisition as a part of its growth strategy. The company is tactically investing capital to bolster its commercial, operational and geographic boundaries, and expand its functional areas of offering. The acquisition of Paroc, a leading producer of mineral wool insulation for building and technical applications in Europe, helped the company expand its geographic scope in Europe. The inclusion of Paroc in the company’s portfolio is also expected to increase insulation products offerings in its three major markets — North America, Europe and China.

Robust Insulation Business: Owens Corning has been witnessing strong demand for its insulating products. This is primarily attributable to the commercial and industrial construction activities, new residential construction, remodeling and repair activities, as well as increased energy efficiency. During the first quarter of 2021, the company observed increased volumes in technical and other insulation across the business with its highly specified products and continuous demand growth in North America and Europe. The insulation business is performing very well, boosting top- and bottom-line growth.

Improved Housing Market: Declining mortgage rates have been driving the U.S. residential market in recent times, thereby aiding Owens Corning. Overall, the U.S. housing market seems to be back on track, defying headwinds like low inventory levels, tight lending conditions and broad-based economic as well as public health risks associated with the pandemic. Revival of housing demand has been a boon for Owens Corning and Zacks Rank #2 (Buy) companies like Masco MAS, TopBuild BLD, United Rentals, Inc. URI and others in the industry.

Superior ROE: Owens Corning has a strong return on equity (“ROE”), that is indicative of its growth potential. The company’s ROE currently stands at 17.4%. This compares favorably with the ROE of 10.8% for the industry it belongs to, indicating the company’s efficiency in using shareholders’ funds and its ability to generate profits with minimum capital usage.

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