OC - Embedded Expectations Analysis - 2018 10 12
Owens Corning (OC:USA) currently trades below corporate averages relative toUAFRS-based (Uniform) Earnings, with a 14.5x Uniform P/E. At these levels, the market has somewhat muted expectations for the firm, while management has concerns about inflation and pricing, guidance targets, and industry utilization rates
Specifically, management is confident that they saw margin compression in H1 2018, and that they would be foolish to say that inflation has peaked. Moreover, they may lack confidence in their ability to properly price shingle in an inflationary environment, and may have concerns about their ability to leverage process technology to scale their assets. Additionally, they may lack confidence in their ability to drive strong comps in their material wool facility, and to improve prices and volume in the business. They may also lack confidence in their expectations for impact of price increases throughout the year, and in their ability to fix the operational issues they encountered in H1 2018 with their pricing adjustments. Moreover, they may lack confidence in the sustainability of growth in single-family housing projects, and that asphalt will continue selling at an elevated level compared to oil. In addition, they may be concerned about their ability to drive improvements of Roofing pricing, net earnings growth, and EBIT, and to meet their target operating leverage level. Finally, they may lack confidence in the sustainability of high industry utilization rates, and may be exaggerating their insulation from tariffs
Owens Corning is engaged in manufacturing and delivering a range of insulation, roofing, and fiberglass composite materials. The company's Composites segment includes vertically integrated downstream activities. The company manufactures, fabricates and sells glass reinforcements in the form of fiber. The company's Insulation segment includes a portfolio of high, mid and low-temperature products with a geographic mix of United States, Canada, Europe, Asia-Pacific and Latin America, a market mix of residential, commercial, industrial and other markets, and a channel mix of retail, contractor and distribution. The company's products in the Roofing segment are laminate and strip asphalt roofing shingles.
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