Owens Corning: Institutions Love It

Price:$30.35

Forward P/E:11.3

Earnings Growth:39%

Projected Sales Growth:8%

Market Cap:$3.67 billion

Why It's Featured: Earnings expected to jump 39%; expanding in China; buying back shares.
Danger Zones: Volatile stock price.

Owens Corning (OC-NYSE), through its subsidiaries, operates in two segments, Composites and Building Materials. The Composites division manufactures, fabricates, and sells glass reinforcements in the form of fiber; and manufactures and sells glass fiber products in the form of fabrics, mat, veil, and other specialized products.  Its products are used in pipe, roofing shingles, sporting goods, computers, telecommunications cables, boats, aircraft, defense, automotive, industrial containers, and wind-energy applications in power and energy, housing, water distribution, industrial, transportation, consumer, and aerospace/military markets. This segment sells directly to parts molders and fabricators; and glass fiber and/or glass mat directly to shingle manufacturers.

The Building Materials group manufactures and sells fiberglass insulation into residential, commercial, industrial, and other markets for thermal and acoustical applications.  It also offers glass fiber pipe insulation, and energy flexible duct media and foam insulation products, such as thermal and acoustical batts, loose fill insulation, foam sheathing, and accessories for use in home construction and remodeling; and manufactures residential roofing shingles and oxidized asphalt materials used in residential and commercial construction and specialty applications. It sells shingles and roofing accessories to insulation installers, home centers, lumberyards, retailers, distributors, contractors, and other manufacturers; and asphalt to roofing contractors and distributors for built-up roofing asphalt systems, as well as to manufacturers in the automotive, chemical, rubber, and construction industries. The company has a strategic alliance with Earth911, Inc.  Owens Corning was founded in 1938 and is headquartered in Toledo, Ohio.

Even with a sputtering economy, some companies deliver the goods.  OC is one of them.  Earnings are set to show a major improvement for all of 2011, coming in at $2.19 if 16 analysts have it right (the range is $2.08 to $2.28).  For 2012, they see $2.69.  The fourth quarter is a good example of the solid improvement in the bottom line.  Expectations are for 48 cents a share compared to 23 cents in 2010's fourth period.  Earnings will be announced on February 15.

The third quarter saw 90 cents a share vs 35 cents in 2010's third.  Analysts had predicted 76 cents.  Revenues for the period were higher by 27% to $1.5 billion compared to $1.186 billion.  Forecast for the full year is $5.4 billion, up 8% from 2010's $5 billion.  For 2012, expect $5.61 billion, higher by 3.9%.   Some of the earnings per share improvement came from the company's stock repurchase program.  Since early in 2011, management has been buying stock and has 3.9 million yet to purchase, an amount they say will be acquired by the end of 2012.

Higher earnings and sales should come from the Insulation group.  The leading insulation installer, Masco, has an exclusive distribution contract with OC.  In the third quarter, this division was the main reason for the 18.5% rise in sales for the segment.  There's also a new product from this division, called EcoTouch, a Pink Fiberglas insulation with PureFiber Technology.  It uses sustainable manufacturing processes and is made with natural materials and a formaldehyde-free formulation.  It contains a minimum of 70% recycled content, the highest in the industry.   Last October, it became the first USDA-approved fiberglass insulation.  That distinction should raise brand exposure and revenues.

Management is looking East, hoping to expand its presence in China with it Composite Solutions products.  Success will depend on a strong economy as macroeconomic forces drive demand.  In 2011, the company saw higher sales and better cost controls for Composites which contributed to a 4% increase in revenues and a 14% improvement in pretax earnings.

Any investor interested in this story has to look at the Beta for OC.  It's 2.7.  That means in the last 52 weeks, it has moved 2.7 times higher or lower than the S&P 500 index.  That's what most investors would call volatile.  Be sure you have the personality to ride this stock should you decide to add it to your portfolio.  Be aware the stock is influenced not only by macroeconomic events in the global economy and domestic housing, it also responds to storm patterns and the ensuing damage.

- Essential Numbers:
- Trailing P/E: 32.6
- Price to sales ratio: .68
- Price to book: .97
- Operarting margin: 7.74%
- Profit margin: 2.19%
- Return on equity: 3.16%
- Return on assets: 3.42%
- Total cash: $50 million
- Cash per share: 41 cents
- Total debt: $2.06 billion
- Total debt to equity: 54.38%
- Current ratio: 1.51
- Book value per share: $30.95
- 52 week change: - 4.42%
- Shares Outstanding: 120.88 million
- Float: 93.75 million
- Held by insiders: 11.94%
- Held by institutions: 90.9%
- There is no dividend.

OC was once known for its lawsuits stemming from asbestos-related claims.  The company went into bankruptcy protection in October of 2000, re-emerged in October of 2006 using a "fresh start" accounting method.  All past shares were retired and new ones were issued.  All of that's history, and the future looks very bright.

Some of the institutions that own this stock are FMR (Fidelity) with 14.03% of the stock; Wayzata Inv. Partners with 9.2%; OC/Fibreboard Asbestos Personal Injury Trust with 11.3%; Maverick Capital, LTD. with 5.88%.  Together they have almost 91% of the Float.

- Company Web site: www.owenscorning.com

- Ted Allrich
January 5, 2012

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