By Sam Boughedda
BofA Securities analyst Rafe Jadrosich downgraded Owens Corning (NYSE:OC) to Underperform from Buy, lowering the firm's price target on the stock to $80 from $119.
In a note released Friday, Jadrosich said they believe new home demand deteriorated over the last few weeks as a result of the spike in mortgage rates (up 40bps in 10 days), plummeting consumer confidence, and the weaker economic growth outlook.
"At our Housing Symposium on June 6th , homebuilders acknowledged a moderation in May (takeaway note), but we believe demand has incrementally slowed since then. We now expect homebuilders to moderate the pace of new construction and US single-family housing starts to fall to the 800-900k range in 2023 from a current pace of 1.1mm," wrote Jadrosich. "We still see positive long-term drivers to new home demand including a demographic tailwind and a shortage of homes following a decade of underbuilding, but the urgency to buy has evaporated and we expect a pause in the housing market that could stretch into 2023."
As a result, the company downgraded insulation, roofing, and fiberglass company Owens Corning, stating there is limited upside to roofing with margins and sales likely near peak levels.
"OC has relatively high new construction exposure (estimate over one-third of insulation and 20% of roofing). In insulation, we now expect volume to decline ~10% YoY in 2023 and margins to compress. Composites could slow in 2023 with weaker industrial demand."