Is Owens Corning (OC) a Good Contrarian Stock Pick?

Owens Corning may be undervalued with strong growth indicators, but the 14 analysts following the company give it an rating of hold. Their target prices range from $78.0 to $140.0 per share, for an average of $112.07. At today's price of $103.61, Owens Corning is trading -7.55% away from its average target price, suggesting there is an analyst consensus of some upside potential for the stock.

Owens Corning engages in manufacture and sale of insulation, roofing, and fiberglass composite materials in the United States, Canada, Europe, the Asia Pacific, Latin America, and internationally. Based in Toledo, OH, the mid-cap Industrials company has 19,000 full time employees. Owens Corning has provided a 1.6% dividend yield over the last 12 months.

Owens Corning has a trailing twelve month P/E ratio of 8.2, compared to an average of 20.49 for the Industrials sector. Based on its EPS guidance of 10.65, the company has a forward P/E ratio of 9.7.

The average compound growth rate of the company's historical and projected earnings per share is 23.7%. On this basis, the company's PEG ratio is 0.32. However, this growth rate is probably not sustainable. In its place we will use the broader market's estimated 5-year EPS growth rate of 10.5%, which gives us a PEG ratio of 0.73. Even with this more conservative assumption on EPS growth, the PEG ratio suggests that Owens Corning shares are underpriced.

Furthermore, the market is potentially undervaluing Owens Corning in terms of its book value because its P/B ratio is 2.1. In comparison, the sector average P/B ratio is 3.78. The company's shares are currently 30.8% above their Graham number, which suggests that they are not trading at a fair value in terms of earnings and net assets.

2019-12-31 2020-12-31 2021-12-31 2022-12-31
Revenue (MM) $7,160 $7,055 $8,498 $9,761
Revenue Growth n/a -1.47% 20.45% 14.86%
Gross Margins 22.5% 22.8% 26.1% 26.8%
Gross Margins Growth n/a 1.33% 14.47% 2.68%
Operating Margins 11.0% 11.4% 16.9% 16.2%
Operating Margins Growth n/a 3.64% 48.25% -4.14%
Net Margins 5.66% -5.43% 11.71% 12.71%
Net Margins Growth n/a -195.94% 315.65% 8.54%
Earnings Per Share $3.68 -$3.53 $9.54 $12.7
EPS Growth n/a -195.92% 370.25% 33.12%
Diluted Shares (MM) 110 109 104 91
Free Cash Flow (MM) $590 $828 $1,087 $1,314
FCF Growth n/a 40.34% 31.28% 20.88%
Capital Expenditures (MM) -$447 -$307 -$416 -$446
Net Debt / EBITDA 2.44 6.64 1.06 0.86
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.