Buckingham Bullish On Owens Corning Ahead Of Q3 Earnings Print

Roofing company Owens Corning OC is expected to discuss on its third-quarter conference call signs of an improving residential end market, according to Buckingham.

The Analyst

Buckingham Research Group analyst Megan McGrath upgraded Owens Corning from Neutral to Buy with a price target lifted from $59 to $79.

The Thesis

McGrath said the case for turning bullish on Owens Corning's stock isn't based on exceptions for a strong third quarter, but rather due to longer-term trends. Specifically, the company's insulation business should show signs of momentum in Wednesday's earnings print but will improve in 2020 from a lack of curtailment expenses, better U.S. volumes and potential pricing stability. As such, the insulation business could show a 100 basis point year-over-year margin improvement next year.

The roofing market could benefit from improvements in asphalt pricing and easier top-line comps, the analyst wrote in the note. While it's too early to determine if the IMO 2020 regulation will be a catalyst for the roofing business, McGrath said there are signs of "early benefits," such as downside to asphalt prices.

Composites represents the company's most notable near-term concern, McGrath said, especially at a time when trends in Europe and manufacturing indicators are weakening. Expectations for weakness are built in to the research firm's model, which calls for 1% revenue growth in 2020 along with a 50 basis point improvement in margins next year.

Price Action

Shares of Owens Corning were trading higher by 0.28% Tuesday at $63.61. On Wednesday morning, the company is expected to report earnings of $1.50 per share on revenue of $1.85 billion.

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