Shares of Owens Corning (OC - Free Report) have lately been riding high. This year, the stock has climbed 54.2% comparing favorably with the 13.6% growth of the industry it belongs to.
Earnings estimates for Owens Corning have exhibited an uptrend, reflecting optimism in the stock’s prospects. The Zacks Consensus Estimate for the company’s current-year earnings has moved north by 0.2% over the past 60 days and up 0.8% for the next year. The positive earnings estimate revision testifies to the confidence that analysts have in the company and substantiates the Zacks Rank #2 (Buy) for the stock.
Let us delve deeper into the other factors which make this stock a lucrative pick.
Healthy Growth Prospects
As re-building efforts are expected to gain traction post hurricanes Harvey and Irma, Owens Corning is likely to benefit as it develops and manufactures insulation, roofing, and carbon composites. Overall, hurricane-relief efforts, a recovering housing market, and acquisition of Pittsburgh Corning have left the company with a pipeline of business for all its business segments. During the second quarter earnings call, management provided a full-year view of $825 million or better of earnings before interest and taxes (EBIT), implying 11% growth over 2016. Through the first half of 2017, the company generated adjusted EBIT of $401 million (up 8.1% year over year) and continues to generate strong operating cash flow.
Owens Corning reported a historical (three-five year) earnings per share (EPS) growth rate of 30.7% (in line with the industry’s average). Meanwhile, the company is expected to grow at a rate of 18.2% this year, significantly higher than the industry’s average of 8.1%.
Again, the company’s sales are expected to increase 9% in the current year compared with the industry’s average growth of just 2.6%. Hence, Owens Corning makes for a great pick in terms of growth investment supported by Growth Score of B.
Valuation Looks Rational
Owens Corning has a Value Style Score of A, putting it into the top 20% of all stocks we cover from this perspective.
The stock currently has a trailing 12-month EV/EBITDA ratio of 10.34 comparing favorably with the industry’s ratio of 26.70. Hence, its lower-than-market positioning hints at more upside in the quarters ahead.
Solid VGM Score
The company flaunts an impressive VGM Score of A. Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics. In fact, our research shows that stocks with VGM Scores of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 make solid investment choices.
Superior Return on Equity (ROE)
Owens Corning has an ROE of 11.1%, a lot better than the industry average of 8.9%. This shows that the company reinvests its cash more efficiently.
Other Stocks to Consider
A few other top-ranked stocks worth considering in the Construction sector are United Rentals, Inc. (URI - Free Report) , KB Home (KBH - Free Report) and Installed Building Products, Inc. (IBP - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
United Rentals is likely to witness a rise of 15.3% in earnings for the current year. Moreover, the company has witnessed an upward earnings estimate revision of 1.6% for the current year, in the last 60 days.
KB Home has witnessed an upward earnings estimate revision of 2.4% for the current year, in the past 60 days.
Installed Building Products is expected to witness 47.2% growth in 2017 earnings.
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