Owens Corning Upgraded On Strong Insulation, Roofing Potential

Industry checks indicate that Owens Corning OC has initiated an 8% residential insulation price hike in the US for both loose-fill and batt and roll, effective Jan. 13, 2020, while consensus estimates do not seem to incorporate this, according to Wells Fargo.

The Analyst

Wells Fargo’s Truman Patterson upgraded on Owens Corning from Market Perform to Outperform while raising the price target from $68 to $77.

The Thesis

Housing starts in San Francisco, which accounts for around 70% of Owens Corning’s US residential business, could increase by 10% or more in the fourth quarter of 2019 and the first quarter of 2020, which “provides air cover for the price hike to stick,” Patterson said in the upgrade note.

He added that housing starts in 2020 are likely increase in the mid-to-high single-digit range, which could result in another increase in prices next year, given the industry’s 90% capacity utilization levels after the company’s capacity adjustments.

The analyst expects Owens Corning’s fourth-quarter results to be impacted by deteriorating insulation pricing and roofing volumes. He mentioned, however, that tailwinds would emerge as the company moves through 2020, including accelerating roofing volume and tightening industry capacity.

Patterson raised the earnings estimate for 2020 from $5.15 per share to $5.34 per share.

Price Action

Shares of Owens Corning were up 2.69% to $66.92 at the time of publishing on Monday.