Owens Corning OC has been reaping benefits from strategic initiatives, inorganic moves, innovative product and process technologies, and capabilities. Moreover, strength in the Insulation business has been adding to the positives.
Notably, shares of Owens Corning have gained 42.3% over the past six months compared with the industry’s 29.4% rally. The price performance was backed by a solid earnings surprise history. Owens Corning’s earnings surpassed the Zacks Consensus Estimate in six of the trailing seven quarters. Earnings estimates for the fourth quarter, full-year 2020 and 2021 have moved up 3.8%, 1.1% and 2.7%, respectively, in the past 30 days. This positive trend signifies bullish analysts’ 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.
Major Growth Drivers
Strategic Initiatives: Owens Corning has implemented strategic initiatives to drive overall performance. Segment-wise, in the Insulation unit, technical and other building insulation businesses look strong on the back of geographic and product expansion through acquisitions. Also, in the North American residential fiberglass business, the company is utilizing automation and additional investments in process technology to improve manufacturing efficiencies, as well as reduce costs.
In Composites, the segment has been generating higher volumes backed by its efforts on higher value applications for glass non-wovens and specific markets like India. The company focuses on improving low-cost manufacturing position through strategic supply agreements, accomplished large-scale furnace investments and additional productivity.
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.
All these initiatives are expected to aid the company to gain further in 2021. The Zacks Consensus Estimate for 2021 earnings indicates an increase of 24.1% from a year ago.
Inorganic Drive: Acquisitions are an important part of Owens Corning’s growth strategy. The acquisition of Paroc — a leading producer of mineral wool insulation for building and technical applications in Europe — enabled the company to expand geographic scope in Europe, as well as augment the portfolio in a bid to include insulation products in all the three major markets — North America, Europe and China.
Solid Insulation Business: Owens Corning’s business experiences strong demand for insulating products. This is primarily driven by commercial and industrial construction activity, new residential construction, remodeling and repair activities, as well as increased energy efficiency. In third-quarter 2020, the North American residential fiberglass insulation business witnessed year-over-year volume growth. Notably, mineral wool businesses in Europe and the United States remain encouraging. For the Insulation business, the company’s sequential operating leverage from second to third-quarter 2020 was 48%, in line with the outlook.
Improved Housing & R&R Market Fundamentals: Declining mortgage rates have been driving the U.S. housing industry in recent times. 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 companies like Masco MAS, TopBuild BLD, Construction Partners, Inc. ROAD and others in the same industry. While Masco and TopBuild carry a Zacks Rank #2 (Buy), Construction Partners sports a Zacks Rank #1.
Furthermore, work-from-home and stay-at-home orders amid the COVID-19 pandemic have encouraged consumers to take on home improvement projects. So, the industry stands to benefit from strong gains from repair and remodeling activity.
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