Owens Corning (OC) Up 51% in a Year: Will the Trend Last?
Shares of Owens Corning OC have gained 50.6% in the past year compared with the Zacks Building Products - Miscellaneous industry’s 34.8% growth. The company’s performance can be attributed to the solid Roofing segment performance and favorable pricing efforts. Also, its emphasis on strategic initiatives and new product innovation bodes well.
The Zacks Rank #3 (Hold) company has a long-term earnings growth rate of 7.9%, which highlights its strength. In the past 60 days, earnings estimates for 2023 have witnessed an upward revision of 1.1% to $13.75 per share. However, increasing pressure in some of the industrial and international markets and higher interest rates are a concern.
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Factors Driving Growth
Solid Roofing Business: Owens Corning’s business has been witnessing strength in the Roofing business. During the third quarter of 2023, the segment delivered strong top and bottom-line performance. On a year-over-year basis, sales increased 8%, driven by strong demand in several markets backed by higher levels of storm activity and a favorable mix and positive price.
For the fourth quarter of 2023, OC anticipates mid to high-single-digit growth in the segment’s revenues compared with $799 million a year ago.
Favorable Pricing Efforts: During third-quarter 2023, the company benefited from positive pricing initiatives in the Insulation business. This and a favorable mix helped offset revenue decline stemming from reduced volumes across businesses.
In the reported quarter, the adjusted EBIT and adjusted EBITDA increased by approximately 6.4% and 5.9% year over year, respectively. Both adjusted EBIT and adjusted EBITDA margin expanded by 200 bps each from the year-ago figure. The company anticipates healthy pricing in the fourth quarter for both Roofing and Insulation businesses.
New Product Innovation: Owens Corning has been actively investing in accelerating new product and process innovation to support customers and foster additional growth. The company expects its current product portfolio and efficiency-improving initiatives to benefit production. The ongoing efforts to introduce new products are encouraging.
During the first nine months of 2023, OC continued to accelerate its product and process innovation, unveiling 25 newer or refreshed products across core platforms in Roofing, Insulation and Composite businesses.
The company plans to make a substantial investment in its Medina, OH facility to expand laminate manufacturing capacity, including its market-leading duration shingles, in support of its roofing business. The anticipated timeline for this new product line to be operational is by the end of 2025.
Strategic Initiatives to Drive Growth: The company implemented strategic initiatives for overall performance improvement. In the Insulation business, strong performance is observed in technical and other building insulation segments, driven by geographic and product expansion through acquisitions. OC continues to invest in new insulation materials and systems for non-residential applications to broaden its global product offerings.
In the Composites segment, the company is prioritizing higher-value applications (building, construction, renewable energy and infrastructure), expanding key product platforms and investing in new lines. The focus is on key markets (North America, Europe, India), aiming for a cost-effective network through productivity enhancements, strategic supply agreements and substantial furnace investments.
In Roofing, Owens Corning is expanding its contractor network, innovating new products and increasing shingle capacity to enhance roofing component attachment rates in its multi-material system.
Concerns
OC is highly dependent on housing market demand. Currently, the housing industry remains challenging given higher mortgage rates and inflationary pressure in material, energy and transportation. Apart from this, labor constraint remains a concerning factor. Although these factors have been stabilizing in recent months, they may dampen Owens Corning’s operating performance in the future. OC is incurring high expenses related to ongoing cost optimization and product line rationalization actions.
Key Picks
Some better-ranked stocks from the Zacks Construction sector are:
Construction Partners, Inc. ROAD sports a Zacks Rank #1 (Strong Buy). ROAD has a trailing four-quarter earnings surprise of 10.6% on average. Shares of ROAD have gained 56.9% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ROAD’s 2023 sales and earnings per share (EPS) indicates gains of 19.3% and 112.2%, respectively, from the year-ago period’s levels.
EMCOR Group, Inc. EME carries a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 25%, on average. Shares of EME have risen 41.7% in the past year.
The Zacks Consensus Estimate for EME’s 2023 sales and EPS suggests growth of 12% and 52.8%, respectively, from the year-ago period’s levels.
TopBuild Corp. BLD sports a Zacks Rank of #2 (Buy). It has a trailing four-quarter earnings surprise of 14.3%, on average. Shares of BLD have surged 102.1% in the past year.
The Zacks Consensus Estimate for BLD’s 2023 sales and EPS indicates gains of 3.7% and 14%, respectively, from the year-ago period’s levels.
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EMCOR Group, Inc. (EME) : Free Stock Analysis Report
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