Bank Of America Upgrades Owens, Lifts Price Target To $72

Owens Corning’s OC portfolio comprises of three relatively disparate businesses and the company may follow Masco Corp’s MAS example of considering strategic alternatives for dissimilar businesses in an attempt to unlock shareholder value, according to Bank of America Merrill Lynch.

The Analyst

BofA’s John Lovallo upgraded Owens Corning from Neutral to Buy, raising the price target from $58 to $72.

The Thesis

In March, Masco announced plans to explore strategic alternatives for its Cabinet and Window businesses. This move has “seemingly triggered” a potential trend in the building products industry of “deconsolidating businesses with unclear industrial logic” to unlock shareholder value, Lovallo said in the note.

Some companies in the building products industry have become “overly diversified,” with businesses that lack “clear industrial logic and/or synergy opportunities,” Lovallo said. He explained that these companies could create shareholder value by making their business portfolios more focused and investing capital to opportunities with higher growth and returns or allocating it to share repurchases, dividends and debt reduction.

Lovallo said the latest news of “another special situations focused investor” buying shares of Owens Corning indicates that “our thesis will likely come to fruition." He added that the company has three relatively disparate businesses in its portfolio and each segment is relatively large.