Owens Corning's Q2 Earnings Beat Triggers Analyst Upgrade To Outperform

RBC Capital Markets analyst Mike Dahl upgraded Owens Corning Inc OC to Outperform from Sector Perform, raising the price target from $135 to $168.

The company recently released the second-quarter FY23 results, where net sales inched down by 1.5% year-over-year to $2.56 billion, beating the consensus of $2.54 billion. Adjusted EPS was $4.22, above the consensus of $3.23.

There may be "over-earning" in current results, notes the analyst, adding that there are no clear catalysts for a significant near-term reversion lower. 

Going ahead, Dahl sees a higher quality/more resilient Owens Corning, bolstered by a strong balance sheet/FCF. 

Price/cost tailwinds continue in Roofing/Insulation, and volume outlooks have improved, suggesting NT margin gains persist, the analyst adds. Roofing could remain robust in the coming quarter on strong storm demand, lean channel inventories, and cost deflation. 

Even as margins eventually normalize, Dahl sees a growing probability of landing well north of pre-pandemic norms and above peer average levels. The analyst forecasts estimated free cash flow, or FCF of $1.1 billion in both '23/'24 and assumes buybacks of $550 million/$600 million in FY23/FY24.

Dahl raised FY23 sales estimates to $9.70 billion from $9.48 billion, increasing the FY23 Adj. EBIT percentage rises to 17.9% from 15.5%. FY23E Roofing goes to 27.6% from 23.6%, Insulation to 17.2% from 14.2%, and Composites to 11.3% from 10.6%. 

For FY24, Dahl raised sales estimates to $9.39 billion from $9.26 billion.

Price Action: OC shares are trading higher by 0.96% to $139.48 on the last check Thursday. 

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