Owens Corning vs. Beacon Roofing Supply: Which Stock is a Better Buy?

Toledo, Ohio-based Owens Corning (OC) is a leading building and construction materials manufacturer and supplier that is operational in 33 countries. In comparison, Beacon Roofing Supply, Inc. (BECN) in Herndon, Va., is a roofing materials and complementary building products distributor in the United States and Canada. Both the companies are on the Fortune 500 list, with OC ranked #413 and BECN  ranked #420.

The building materials industry is expected to benefit from the landmark $1.2 trillion infrastructure bill passed on November 15. Approximately $550 billion in the bill is dedicated to constructing and renovating public infrastructure in the United States, including roads, bridges, water, and energy systems. The infrastructure bill is hailed as a “once-in-a-lifetime” investment, with the goal of transforming the country’s existing infrastructure framework, which was recently rated C by the American Society of Civil Engineers. So, the demand for building materials is expected to accelerate over the next few years. Consequently, both OC and BECN should see impressive growth over the long term.

Shares of BECN have gained 42% in price over the past year, while OC has risen 20.6% over this period. In terms of year-to-date performance, BECN is the clear winner, with 34.5% gains versus OC’s 18.7% returns over this period. However, BECN has declined 9.5% over the past month, while OC retreated 2.4%.

But which stock is a better buy now? Read more to find out.

Latest Movements

On November 19, OC was named as a participant in the Dow Jones Sustainability World Index for the 12th consecutive year, and in the Dow Jones Sustainability North America Index for the fourth consecutive year. This reflects OC’s long-term sustainability efforts. Regarding this, OC Chair and CEO Brian Chambers said, “At Owens Corning, sustainability is core to who we are and how we operate. Continued inclusion in these indices is a clear reflection of the hard work of our global team as we continue to push ourselves to build upon our strong track record of performance to meet the needs of our customers, communities, and shareholders.”

On December 2, OC announced a 35% increase in its quarterly dividend to $0.35, payable on January 21, 2022. This indicates the company’s stable cash flows and management’s confidence in the company's earnings power.

On December 1, BECN sold its solar products business to global renewable energy developer Baywa r.e. The move was in line with BECN’s plan to focus on its core exterior customers. Furthermore, to strengthen its core business segment, BECN acquired Midwest Sales & Distributing, Inc. in November. This acquisition is expected to enhance BECN’s presence in the Midwestern region.

Recent Financial Results

For its  fiscal third quarter, ended September 30, 2021, OC’s net sales rose 16.2% year-over-year to $2.21 billion. Its EBIT came in at $394 million, up 33.1% from the same period last year. And its net income and EPS rose 26.2% and 33%, respectively, from the prior-year quarter to $260 million and $2.50.

BECN’s net sales improved 6.9% year-over-year to $1.88 billion in its  fiscal fourth quarter, ended September 30, 2021. Its gross margin rose 200 basis points from the year-ago value to 27.1%. Its adjusted net income came in at $127.10 million, up 40.1% from the same period last year, while its EPS increased 55.2% from the prior-year quarter to $1.21.

Past and Expected Financial Performance

OC’s revenues and EBIT increased at CAGRs of 6.1% and 26.5%, respectively, over the past three years. The company’s EPS has risen at a 42% CAGR over the past three years, while its levered free cash flow improved at a 72.2% CAGR over this period.

In comparison, BECN’s revenues have risen at a 1.2% rate per annum over the past three years. The company’s EBIT has risen at a 22.3% CAGR over the past three years, while its EPS improved at a 37.8% CAGR over this period. However, the company’s levered free cash flow has declined at a 7.3% rate per annum over the past three years.

Analysts expect OC’s revenues to rise 5.7% in the current quarter (ending December 2021), 19.1% in the current year, and 5.4% next year. The company’s EPS is expected to improve marginally in the current  quarter, 68.5% in the current year, and 8.2% next year. Furthermore, OC’s EPS is expected to rise at a 28.9% CAGR over the next five years.

In comparison, the Street expects BECN’s revenues to decline 11.6% in the current quarter but increase 5.8% in the current year and 4.7% next year. The consensus EPS estimates indicate a 1.5% year-over-year improvement in the current quarter, a 6% rise in the current year, and an 8.2% increase next year. In addition, analysts expect BECN’s EPS to rise at an 8.8% rate per annum over the next five years.

Profitability

OC’s trailing-12-month revenue is 1.24 times BECN’s. In addition, OC’s 12.06% trailing-12-month net income margin compares with OC’s negative 0.69%. OC’s 23.18% and 12.5% respective EBITDA margin and levered free cash flow margin are significantly higher than BECN’s 9.73% and 2.19%.

And OC’s 24.29%, 9.28%, and 12.38% respective ROE, ROA, and ROTC compare with BECN’s 10.28%, 4.73%, and 6.22%. However, BECN’s 26.46% trailing-12-month gross profit margin s 25 basis points higher than OC’s 26.21%.

Valuation

In terms of forward non-GAAP P/E, BECN is currently trading at 11.41x, which is 11.5% higher than the 10.23x industry average. BECN’s 48.60 and 9.19 respective trailing-12-month Price/Cash Flow and EV/EBITDA ratios are significantly higher than OC’s 5.70 and 5.96.

However, OC’s 0.36 forward non-GAAP PEG multiple is slightly higher than BECN’s 0.34.

POWR Ratings

OC has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. In contrast, BECN has an overall C rating, which translates to Neutral. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

OC has a grade of B for Value. This is justified because the stock’s 5.70 trailing-12-month Price/Cash Flow multiple is 63.5% lower than the 15.59 industry average. In comparison, BECN has a grade of C for Value. In terms of trailing-12-month Price/Cash Flow, BECN is currently trading at 48.60x, which is 211.7% higher than the 15.59x industry average, which is  in sync with the Value grade.

OC has a Quality grade of B. The company’s 23.18% trailing-12-month EBITDA margin is 71.9% higher than the 13.49% industry average, justifying the Quality grade. BECN has a Quality grade of C. Its 9.73%  trailing-12-month EBITDA margin is 27.8% lower than the 13.49% industry average, which is in sync with the Quality grade.

Of the 53 stocks in the B-rated Industrial – Building Materials industry, OC is ranked #14, while BECN is ranked #35.

OC shares were trading at $87.34 per share on Friday afternoon, down $2.57 (-2.86%). Year-to-date, OC has gained 16.71%, versus a 25.10% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

More...