Building Material Profits

Wall Street has not been pleased with the performance of buildingmaterials specialist Owens Corning (NYSE: OC) in the first nine months of 2018. While a stock slide of more than 40 percent over that period seems to imply that some aspect of the business went off the rails, the more likely explanation is far less entertaining: The company has simply posted some earnings per share (EPS) numbers in past quarters that didn’t meet analyst expectations.

That doesn’t mean the business is struggling. In fact, secondquarter 2018 revenue jumped 14 percent, and net income soared 26 percent compared to the year-ago period. It’s true that Owens Corning has experienced higher-thanexpected material costs, which dragged down gross profit margin in the first six months of the year. But the temporary headwinds don’t justify how the shares have been punished. That has created an intriguing opportunity for long-term investors.

Owens Corning stock is now looking undervalued, with a forwardlooking price-to-earnings (P/E) ratio recently well below 10. The tumbling share price has also nearly doubled the dividend yield, recently at 1.7 percent. (The dividend payout has increased by an annual average of 7 percent over the past four years, too, and has plenty of room to grow more.) With management expecting an eventual rebound in material purchasing prices, Owens Corning deserves a closer look.