OC Stock Study (6-11-24)
Posted by Mark on July 21, 2024 at 09:16 | Last modified: June 11, 2024 11:07I recently did a stock study on Owens Corning Inc. (OC) with a previous closing price of $176.40/share.
M* writes:
> Owens-Corning Inc is a manufacturer of glass fiber utilized in
> composites and building materials. It has an integrated business
> model with three reportable segments: Composites, Insulation, and
> Roofing. It generates maximum revenue from the Roofing segment.
> Its Roofing segment laminate and strip asphalt roofing shingles,
> roofing components, synthetic packaging materials, and oxidized
> asphalt. It meets the growing demand for longer-lasting,
> aesthetically attractive laminate products with modest capital
> investment. Geographically the company generates the majority
> of its revenue from the United States.
Over the last 10 years, this medium-size company has grown sales and earnings at annualized rates of 7.5% and 24.2% (excluding -$3.53 EPS in COVID ’20), respectively. Lines are generally up and parallel with YOY sales declines in ’20 and ’23 along with YOY EPS declines in 17, ’19, and ’20.
Over the last decade, PTPM trails industry averages while leading peers by ranging from 4.4% (’14) to 16.4% (’23) with a last-5-year mean of 10.6%. ROE trails industry and peer averages despite increasing from 5.8% (’14) to 22.4% (’23) with a last-5-year mean of 13.9%. Debt-to-Capital is less than industry and peer averages despite increasing from 35.4% (’14) to 38.8% (’23) with a last-5-year mean of 41.7%.
Quick Ratio is 1.17 and Interest Coverage is 21.6. Value Line gives a B++ rating for Financial Strength.
With regard to sales growth:
- YF projects YOY 3.9% and 6.2% for ’24 and ’25, respectively (based on 17 analysts).
- Zacks projects YOY 16.0% and 12.2% for ’24 and ’25, respectively (2 analysts).
- Value Line projects 8.4% growth per year from ’23-’28.
- CFRA projects 0.5% YOY and 1.7% per year for ’24 and ’23-’25, respectively.
- M* gives a 2-year annualized ACE of 5.9%.
I am forecasting in the middle of the range at 4.0% per year.
With regard to EPS growth:
- MarketWatch projects 3.1% and 3.6% per year for ’23-’25 and ’23-’26, respectively (based on 17 analysts).
- Nasdaq.com projects 13.4% YOY for ’25 (2 analysts).
- Seeking Alpha projects 4-year annualized growth of 3.6%.
- YF projects YOY 4.5% and 5.8% for ’24 and ’25, respectively (17), along with 5-year annualized growth of 7.7%.
- Zacks projects YOY 7.3% and 13.4% for ’24 and ’25, respectively (2), along with 5-year annualized growth of 2.2%.
- Value Line projects 8.8% per year from ’23-’28.
- CFRA projects 1.8% YOY and 4.9% per year for ’24 and ’23-’25 along with a 3-year CAGR of 7.0%.
My 3.0% forecast is near the bottom of the range of four long-term estimates (mean 5.6%). Initial value is 2024 Q1 EPS of $12.35/share (annualized) instead of ’23 EPS $13.14.
My Forecast High P/E is 15.0. Over the past decade, high P/E falls from 24.4 (’14) to 11.8 (’23) with a last-5-year mean of 12.5 (excluding NMF in ’20) and a last-5-year-mean average P/E of 10.2. I am near the bottom of the decade range [’21 (11.5), ’22 (8.0), and ’23 (11.8) are lower].
My Forecast Low P/E is 7.0. Over the past decade, low P/E falls from 14.9 (’14) to 6.5 (’23) with a last-5-year mean of 7.9 (excluding NMF in ’20). I am forecasting near the bottom of the decade range [’21 (7.6), ’22 (5.7), and ’23 (6.5) are lower].
My Low Stock Price Forecast (LSPF) is $123.00. Default, given the initial value from above, is unreasonably low at 58.0% less than the previous close. My forecast is 30.3% less than the previous close but 11.8% above the 52-week low.
Over the past decade, Payout Ratio (PR) ranges from 11.8% in ’21 to 33.5% in ’14 with a last-5-year mean of 16.3% (excluding NMF in ’20). I am forecasting below the range at 11.0%.
These inputs land OC in the HOLD zone with a U/D ratio of 0.4. Total Annualized Return (TAR) is 4.8%.
PAR (using Forecast Average—not High—P/E) of -1.2% is unacceptable for any size company. If a healthy MOS anchors this study, then I can proceed based on TAR but even that is less than the current yield on T-bills.
To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 8 studies done in the past 90 days (my study and 4 other outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 4.8%, 6.0%, 13.3, 7.9, and 16.3%, respectively. I am lower on all but the third. Value Line projects a future average annual P/E of 15.0 that is greater than MS (10.6) and greater than mine (11.0).
MS high / low EPS are $17.06 / $12.35 versus my $14.32 / $12.35 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $20.00 soars above both.
MS LSPF of $102.50 implies a Forecast Low P/E of 8.3 versus the above-stated 7.9. MS LSPF is 5.1% greater than the default $12.35/share * 7.9 = $97.57, which results in more aggressive zoning. MS LSPF is 16.7% less than mine, however.
With regard to valuation, PEG is 5.3 and 4.6 per Zacks and my projected P/E, respectively: both substantially overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is about the highest I’ve seen at 1.40.
As rare as it is for me to say, I believe MOS to be weak in the current study. EPS growth rate is low and I use the lower, most-recent quarterly EPS as initial value. However, I override LSPF to go higher despite a low Forecast Low P/E. I also go higher on Forecast High P/E just to get forecast high price above current level.
I’m always going to be hard-pressed to invest in such a “high flyer.” My concessions are to maintain an appearance of validity to the current study, but fact is the stock is up ~70% in the past year and trading near 52-week highs.
U/D has OC a Buy under $118/share while the BI TAR criterion will be satisfied ~$107 given a forecast high price ~$214.
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