Strategic Initiatives Drive Owens Corning Despite High Costs

Owens Corning OC is poised to benefit from acquisitions and expansion initiatives. Moreover, improved operating efficiencies, and higher contribution from Roofing and Composites segments added to the upside.

Notably, shares of Owens Corning have gained 27.5% in the past six months compared with the Zacks Building Products - Miscellaneous industry’s 17.1% rise.

 

 
However, higher raw material costs and currency fluctuation are potential headwinds. Also, lower volume in the North America residential fiberglass insulation business raises concerns.

Let’s discuss the factors that substantiate the company’s Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Growth Catalysts

Owens Corning has been displaying significant strength on geographic and product expansion. Also, strategic initiatives —including automation and additional investments— and reducing costs bode well.

Notably, the company generated 7% higher volume year over year in the Composites segment on strategic supply agreements, large-scale furnace investments and additional productivity.

Moreover, acquisition is an important part of Owens Corning’s growth strategy. In February 2018, it acquired Paroc, which enabled it to expand geographic reach in Europe and augment portfolio to include insulation products in all three major markets — North America, Europe and China. In the last three quarters of 2019, the acquisition added $38 million to total net sales.

Although Material and transportation inflations have been affecting the company, solid pricing momentum are somewhat mitigating the same.

Concerns

Material and transportation costs are dampening Owens Corning’s operating performance. Also, higher rebuild and start-up costs have been negatively impacting its results. The ongoing volatility in material costs, which may also persist in the near term, might affect the company’s performance.

Also, lower volumes in the North America residential fiberglass insulation business and negative foreign currency translation pose concerns. Notably, the Insulation segment witnessed a 2% year-over-year sales decline and a fall of 100 basis points in EBIT margin due to soft demand, mainly in the North America residential fiberglass insulation business, and currency headwinds.

Key Picks

Some better-ranked stocks in the same space are Foundation Building Materials, Inc FBM, Installed Building Products, Inc IBP and Simpson Manufacturing Co., Inc SSD, each currently sporting a Zacks Rank #1.

Foundation Building Materials surpassed earnings estimates in each of the trailing four quarters, delivering a positive surprise of 45.1%, on average.

Installed Building Products has expected earnings per share growth rate of 16% for three-five years.

Simpson Manufacturing’s 2020 earnings are expected to rise 19.2%.

Just Released: Zacks’ 7 Best Stocks for Today

Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.6% per year.

These 7 were selected because of their superior potential for immediate breakout.

See these time-sensitive tickers now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Installed Building Products, Inc. (IBP) : Free Stock Analysis Report
 
Owens Corning Inc (OC) : Free Stock Analysis Report
 
Simpson Manufacturing Company, Inc. (SSD) : Free Stock Analysis Report
 
Foundation Building Materials, Inc. (FBM) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research