On Thursday, Evercore ISI adjusted its stance on Owens Corning (NYSE:OC), moving from an Outperform rating to an In Line rating, while also reducing the price target to $154 from $163. The change comes after Owens Corning (NYSE:GLW) delivered a robust fourth-quarter performance, surpassing analyst expectations with an adjusted EPS of $3.21, compared to the anticipated $2.81 and the consensus of $2.86. The company's EBIT margins outperformed in Roofing and Insulation but fell short in Composites.
Owens Corning experienced a slight increase in total sales of 0.8%, countering the forecasted 1.9% decline. This growth was driven by a notable 16.1% rise in Roofing sales, which exceeded the 7.5% estimate. However, sales in Composites and Insulation did not fare as well, with declines of 12.7% and 2.6%, respectively, compared to the estimated drops of 9.5% and 4.5%.
Despite previously favoring Owens Corning as a top pick in the building products sector, Evercore ISI has revised its first-quarter estimates downward. The firm acknowledges that the Roofing segment is currently over-earning. Additionally, the potential divestiture or spin-off of the glass reinforcements business and the acquisition of Masonite are seen as factors that could introduce execution risk and possibly curtail the company's share repurchase activities.
The firm is looking forward to gaining clarity on several fronts later in the year, including sales and earnings targets post-integration, progress in the separation of the reinforcements business, and trends in the roofing industry. Until then, the analyst believes that the potential for stock price appreciation is somewhat constrained.
This downgrade follows a period of significant outperformance by Owens Corning, with the stock price having surged 66% since January 2023, outpacing the 38% gain of the Building Products Index. The new price target of $154 is based on a multiple of 10.5 times Evercore ISI's full twelve-month EPS estimate of $14.72 for Owens Corning.
InvestingPro Insights
In light of the recent downgrade by Evercore ISI, Owens Corning (NYSE:OC) presents a mixed picture according to InvestingPro data and insights. The company has shown resilience with a slight revenue growth over the last twelve months as of Q1 2023, reporting $9.658 billion, bucking the trend with a modest 0.53% increase. This is particularly noteworthy given the broader economic challenges and the declines in specific segments such as Composites and Insulation.
InvestingPro Tips suggest that Owens Corning has a track record of returning value to shareholders. The company has not only raised its dividend for 5 consecutive years but has also maintained dividend payments for 11 consecutive years. This demonstrates a commitment to shareholder returns even as the company navigates sector-specific and macroeconomic headwinds. Moreover, the current dividend yield stands at 1.68%, reflecting a significant dividend growth of 71.43% over the last twelve months as of Q1 2023, which may appeal to income-focused investors.
Despite the recent price dip, with a 1-week total return of -10.32%, the company's stock has had a strong return over the past year, delivering a 40.62% price total return. The market has recognized Owens Corning's robust performance over time, with the current price hovering at 89.29% of its 52-week high and analysts setting a fair value target of $164, suggesting potential upside from the previous close of $147.04.
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