Near-Term Inflationary Trends Send Argus To Sidelines On Owens Corning

Composite and building materials manufacturer Owens Corning OC could miss on full-year expectations, according to Argus. 

The Analyst

Analysts John Eade and Olivia Hoyda downgraded shares of Owens Corning from Buy to Hold.

The Thesis

Conditions in the cyclical housing and construction markets in which Owens Corning operates remain strong and will likely lead to solid results for the company over the next several years, the analysts said in a Friday note.

The deterrent: near-term inflationary trends that could perk up input prices, according to Argus. 

The company's recent first-quarter results trailed consensus estimates, although IT did not tamper with its full-year guidance.

The near-term technical picture is challenging, as the stock's 50-day moving average moved below the 200-day moving average, Eade and Hoyda said. The analysts sees $55 as the next support level.

Owens Corning shares are trading at a discount to those of other building supply companies, according to Argus. The discounted valuation is justified due to inflationary pressures, the analysts said. 

Argus said it will revisit its rating if the shares fall back toward the $55 support level or if signs emerge that EBIT margins are stabilizing and full-year targets are achievable.

The Price Action

Owens Corning shares have pulled back a steep 31 percent year-to-date.

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Photo courtesy of Owens Corning.