NYSE: Owens CorningDate: April 12, 2016

CFA Research Challenge - 2016 ▪ Ohio State University, Columbus Ohio

Share Price at Initiation $40.52

Target Price $50.48

Recommendation: Buy

Target Price

Method Valuation

Sum of Parts $47.90

Discounted Cash Flow $45.88

Relative Valuation $57.67

Average $50.48

24.6%upside

Investment Thesis

1. Continued U.S housing market recovery that

drives up insulation and roofing sales

2. Rising capacity utilization leads to higher

margin in the composite sector

3. Efficient cost cutting activities that improves

price competitiveness

2

$20.0

$25.0

$30.0

$35.0

$40.0

$45.0

$50.0

$55.0

0.0

2,000,000.0

4,000,000.0

6,000,000.0

8,000,000.0

10,000,000.0

12,000,000.0

14,000,000.0

Share Price and Volume

Market Profile

34%

33%

32%

Revenue by Segment

Composites Insulation Roofing

Price - (April 08, 2016) $48.68Price at Initiation - (February 12, 2016) $40.5252- week price rangeAdj. Beta 0.97Market cap. (US$ m) $4,724.1Enterprise value (US$ m) $7,542.8Dividend Yield 1.8% Return On Equity 4.5% EPS 2015 $2.79P/E (TTM) 14.5 x

NYSE: Owens Corning

$37.29 - $49.69

3

Essentials Leadership positions across all business

segments

6 consecutive quarters of earnings surprise

70% brand recognition

Operations across 26 countries

Business DescriptionComposites Downstream and Reinforcements

Driven by continued international growth of industrial production

Characterized by diverse applications

Insulation Market is split into commercial, residential, and industrial

Driven by housing market recovery and new building codes

Expanding product mix such as Thermafiber

Roofing Roofing shingles and components

Mainly driven by replacement need

Low oil prices decrease asphalt costs

Industry Valuation Risk AnalysisBusiness Description

Financial Analysis 4

Composites Industry $7.5 billion global market with a 5%-

7% CAGR

Capacity utilization is expected to

remain above 90% through 2018

Pricing power shifts to suppliers

2005-2009 2010-2015(E) 2016(E)-2018(E)0.0

0.5

1.0

1.5

2.0

0.5

1.7

0.8

1.7

0.8

0.5

Estimated Global Demand/Capacity

Change in global demand Change in global capacityM

illio

ns o

f Ton

s

Business Description Industry Valuation Risk AnalysisFinancial

Analysis 5

Insulation Industry

2010 2011 2012 2013 2014 201550

100

150

200

New Housing Starts & Existing Home Sales

New Housing Starts Existing Home Sales

Inde

xed,

201

0 =

100

Business Description Valuation Risk AnalysisFinancial

AnalysisIndustry

Market size will reach $10.4 billion by

2019 with a 7% CAGR

The market is currently driven by

recovery on U.S. housing market

and new building codes

Rising demand and constrained

capacity lead to widening EBIT

margin

6

Roofing Industry

2009 2010 2011 2012 2013 2014 2015(f) 2016(f) 2017(f) 2018(f)0

25

50

75

100

125

-15%

-10%

-5%

0%

5%

10%

15%

11 11 11 14 17 18 19 22.0426.97971191980627.7891032774002

10997

111 104 94 89 8890

89 89

U.S. Asphalt Shingle Market Demand

New Construction Re-Roofing Growth ( Right )

MM

Sq.

Business Description Valuation Risk AnalysisFinancial

AnalysisIndustry

A $20 billion industry with a 3.9%

CAGR

Demand is driven by necessary

replacement

We expect slight revenue growth but

stable profit margin because of

antitrust investigation

7

Financial Analysis

Business Description Industry Financial

Analysis Valuation Risk Analysis

2014 2015(f) 2016(f) 2017(f) 2018(f) 2019(f)$3.0

$3.5

$4.0

$4.5

$5.0

$5.5

$3.19$3.47

$4.31

$5.04 $4.93 $4.98

Unlevered Free Cash Flow per Share

2014 2015(f) 2016(f) 2017(f) 2018(f) 2019(f)$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$1.91

$2.40

$3.26

$3.71 $3.67 $3.81

Earnings per Share

Cash Flow and EPS Forecast

Free cash flow will be driven by

improved operating performance and

tax loss carryforwards

Increasing free cash flow leads to

continued share repurchases and

higher EPS

8

Financial Analysis

Business Description Industry Financial

Analysis Valuation Risk Analysis

2012

2013

2014

2015(f)

2016(f)

2017(f)

2018(f)

2019(f)

$0.0

$500.0

$1,000.0

$1,500.0

$2,000.0

$2,500.0

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

1.8 1.8 1.9 2.0 2.0 2.1 2.2 2.3

5% 4%

7%9%

10% 11%9% 9%

Composite

Revenue EBIT Margin

2012

2013

2014

2015(f)

2016(f)

2017(f)

2018(f)

2019(f)$0.0

$500.0

$1,000.0

$1,500.0

$2,000.0

$2,500.0

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

1.4 1.6 1.7 1.8 1.9 2.1 2.2 2.4

-3%

2%

5%7%

9% 9% 9% 9%

Insulation

Revenue EBIT Margin

2012

2013

2014

2015(f)

2016(f)

2017(f)

2018(f)

2019(f)

$0.0

$500.0

$1,000.0

$1,500.0

$2,000.0

$2,500.0

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

2.0 1.9 1.7 1.8 1.8 1.9 2.0 2.1

17%16%

12%

14%15% 16%

15%13%

Roofing

Revenue EBIT Margin

Billions Billions Billions

9

Implied share price of $50.48 is calculated

from the average of a:

Sum-Of-Parts DCF

$46.19 - $53.59

Pro-Forma Financial Statement DCF

$44.69 - $53.94

Relative Valuation

$49.31 - $58.71

Valuation

Relative Valuation

Pro-Forma Financial Statement

Sum-of-Parts

$40.0 $45.0 $50.0 $55.0 $60.0

Implied Price Ranges

$58.71

$44.69 $53.94

$53.59$46.19

$49.31

Business Description Industry Risk AnalysisFinancial

Analysis Valuation10

Relative Valuation

Business Description Industry Risk AnalysisFinancial

Analysis Valuation

Company TickerLarge-CapPPG Industries PPGCRH Public Limited Company CRHMid-CapRPM International Inc. RPMCarlisle Companies Incorporated CSLUSG Corporation USGBeacon Roofing Supply Inc. BECNSmall-CapPatrick Industries, Inc. PATKBluelinx Holdings Inc. BXC

Comps EV/EBITDA P/EMedian 10.5x 23.2xAverage 12.3x 24.5xHigh 12.8x 32.8xLow 9.4x 16.8x

Implied Share PriceEV/EBITDA $57.67Forward P/E $55.27

Methods

Comparable companies from all 3 business segments where examined

Median EV/EBITDA multiples where chosen for the implied share price

11

DCF Assumptions

Business Description Industry Risk AnalysisFinancial

Analysis Valuation

Forecasting & Terminal Value

Industry growth assumptions were the basis for forecasting

total revenue and individual segment revenues

Management guidance directed expectations for segment

specific and firm-wide CAPEX and EBIT forecasts

Historical medians were used to forecast NWC

Firm-wide Beta is calculated from weekly market data

Segment Beta is calculated from comparable product

segment companies unlevered Beta

Cost of equity of 9.59%

Cost of debt of 2.1% is based off of the weighted average

cost of outstanding debt

AssumptionsPro-Forma Financial Statement DCF

Exit Multiple (EV/EBITDA) 9.4xWeighting 50.0%

Perpetual Growth Rate 3.3%Weighting 50.0%

Firm-Wide WACC 7.4%

Sum-of-Parts DCFExit Multiple

Composites 8.5xInsulation 6.8xRoofing 6.3x

Segment WACCComposites 6.74%Insulation 5.14%Roofing 7.65%

12

International & Other Uses26.0%

North American Residential51.8%

North American Industrial & Commercial

22.2%

Firm-Wide SalesBy region and application

Risks

Business Description Industry Valuation Risk AnalysisFinancial

Analysis

High North American Exposure

74.0% of firm-wide revenue from North America

51.8% of firm-wide revenue from US Residential

Market

Global Economic Slowdown

60% of composites revenue is international

Industrial production trending lower in major

markets

Volatility in Oil Price

Lag has increased from 3 to 6 months

Oil prices may adversely affect the margin in the

roofing segment 2H15

1H16

$20

$40

$60

$80

$100

$120

Crude Oil Spot Prices (WTI, per barrel)

13

Recommendation: Buy

UpsideIntrinsic Value $ 50.48 Price (at initiation) $ 40.52 + 24.58%Price (04/08/2016) $ 48.68 + 3.69%

Buy

Resilient US economy

Expansion into new markets

Acquisition of higher

performing assets

Cost reduction

6 consecutive quarters of earnings surprises

14

Appendix

Capacity Expansion in Fiberglass Industry

Roofing Demand is Driven by Replacement

Asphalt Dominates the Roofing Market

USD Appreciation on Composite Revenue

Indicators to Forecast Roofing Revenue

Insulation Demand is Raised by Recovering Housing Market

Insulation Capacity Forecast

Indicators to Forecast Insulation Revenue

Industry Overview Valuation

DuPont Analysis

DCF Assumptions

Capacity Expansion in Fiberglass industry

2005-2011 2012-2018(f)$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

3.6

1.1

0.3

1.3

Expenditure on Capacity Addi-tions/Rebuilds

Additions Rebuilds

Bill

ions

Chinese competitors expanded capacity most

aggressively

Expansion will be constrained because of

1. Credit tightening in Chinese financial

market

2. Increasing production costs in China

3. Chinese competitors have been loaded

with high debt

Revenue driven to profitability driven

16

1Q

12

4Q

12

1Q

13

3Q

13

4Q

13

1Q

14

3Q

14

4Q

14

1Q

15

3Q

15

4Q

15

1Q

16

$400,000,000

$425,000,000

$450,000,000

$475,000,000

$500,000,000

80

90

100

110

120

130

Composite Sales U.S. Dollar Index

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

0%

3%

6%

9%

12%

15%

10%10% 10%

11%

5%

7%

2%

5%

2%

7%

5%

8%

6%

7%7%

11%13%

13%12%

10%

Operating Margin

USD Appreciation on Composite Revenue We expect strong dollar to reduce the

global revenue

Improving capacity utilization will enable

producers to charge a higher markup that

compensates the loss in revenue

17

Asphalt Components Metal Tile Other0%

20%

40%

60%

80%69%

14%10%

5% 2%

Shingle Market by Materials

Asphalt Tile Metal Wood Composite Slate$0

$10,000

$20,000

$30,000

$40,000

$9,000

$16,000 $18,000 $18,000$21,000

$29,000

Average Installation Cost

Asphalt Dominates the Roofing Market The durability and cost effectiveness

make asphalt shingles the top choice for

consumers

We do not forecast a change in its

dominance in the roofing market

18

Leaks

Old

Weather Damage

Upgrade Appearance

Deteriorating

Other

0% 10% 20% 30% 40%

33%

33%

14%

11%

7%

2%

Re-roofing Demand Breakdown

17%

33%

50%

Roofing Demand Breakdown

New Construction

Residential Re-roofing

Non-Residential Re-roofing

Re-roofing demand accounts for 83% of

the North American Market

88% of re-roofing demand is driven by

necessary replacement such as leaks,

aging, weather damage, and deteriorating

Demand is Driven by Replacement

19

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

$0

$200,000,000

$400,000,000

$600,000,000

$800,000,000

-10%

0%

10%

20%

30%

40%

Roofing Sales New Housing Starts (YoY) Existing Home Sales (YoY)

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

-30%

-20%

-10%

0%

10%

20%

30%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

Roofing Sales YoY (Left)Disposable Personal Income YoY (Right)

Indicators to Forecast Roofing Revenue Since roofing is an expenditure for

durable goods, we believe personal

income to be a reliable predictor of roofing

sales but the correlation coefficient is still

low at 0.26

The correlation coefficient is 0.01 with

new housing starts and 0.18 with existing

home sales

20

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

-10%

0%

10%

20%

30%

40%

$331,000,000

$340,000,000

$384,000,000$413,000,000

$330,000,000

$415,000,000

$431,000,000

$466,000,000

$355,000,000

$447,000,000

$454,000,000

$490,000,000

$379,000,000

$451,000,000

$502,000,000$518,000,000

Insulation Sales New Housing Starts (YoY) Existing Home Sales (YoY)

Demand Raised by Recovering Housing Market

Owens Corning forecast capacity

utilization to climb above 90% on 1.1

million new housing starts in the U.S.

We expect revenue and margin in the

insulation segment to expand given a

12% growth in new housing starts

21

100000 150000 200000 250000 300000 350000$250,000,000

$350,000,000

$450,000,000

$550,000,000

R² = 0.65510000002875

New Housing Started vs Owens Corning Insulation Sales

10,00

0,000

11,00

0,000

12,00

0,000

13,00

0,000

14,00

0,000

15,00

0,000

16,00

0,000

17,00

0,000

$250,000,000$300,000,000$350,000,000$400,000,000$450,000,000$500,000,000$550,000,000

R² = 0.505695238870107

Existing Home Sales vs Owens Corning Roofing Sales

Mill

ions

Indicators to Forecast Insulation Revenue Owens Corning’s quarterly insulation

sales have a correlation coefficient of 0.81

with new housing starts and 0.69 with

existing home sales

The statistics are consistent with the

belief that insulation demand is driven by

new construction

22

DuPont Analysis ROE has been driven by a mix of improved margins and asset turnover

Financial leverage is expected to decrease by 37bps as total shareholder equity growth outpaces total assets and debt

ROE Break Down 2013 2014 LTM 2015(f) 2016(f) 2017(f) 2018(f) 2019(f)Net Profit Margin 3.9% 4.3% 4.8% 5.0% 6.4% 6.9% 6.4% 6.2%

Asset Turnover 69.2% 69.8% 71.1% 72.0% 72.5% 72.1% 72.7% 73.6%

Financial Leverage 2.00x 2.03x 1.99x 2.03x 1.91x 1.83x 1.73x 1.65x

ROE 5.3% 6.1% 6.7% 7.4% 8.9% 9.1% 8.1% 7.6%

23

DCF Assumptions2015(f) 2016(f) 2017(f) 2018(f) 2019(f)

CompositeSales (% growth) 4.3% 4.3% 4.3% 4.3% 4.3%EBITDA (% sales) 15.9% 17.5% 15.9% 14.9% 14.9%D&A (% CAPEX) 65.0% 65.0% 70.0% 75.0% 80.0%Capital Expenditure (% sales) 11.4% 11.4% 7.7% 7.7% 7.7%Tax Rate 6.6% 6.6% 6.6% 6.6% 6.6%

InsulationSales (% growth) 7.0% 7.0% 7.0% 7.0% 7.0%EBITDA (% sales) 13.0% 15.0% 15.0% 15.0% 15.0%D&A (% CAPEX) 93.5% 93.5% 93.5% 93.5% 93.5%Capital Expenditure (% sales) 6.5% 6.5% 6.5% 6.5% 6.5%Tax Rate 6.6% 6.6% 6.6% 6.6% 6.6%

RoofingSales (% growth) 3.9% 3.9% 3.9% 3.9% 3.9%EBITDA (% sales) 16.0% 17.0% 18.0% 17.0% 16.0%D&A (% CAPEX) 132.4% 122.4% 112.4% 102.4% 92.4%Capital Expenditure (% sales) 1.3% 1.3% 1.8% 2.3% 2.8%Tax Rate 6.6% 6.6% 6.6% 6.6% 6.6%

24

DCF AssumptionsComposite Insulation Roofing

Cumulative Present Value of FCF $473.8 $624.3 $1013.2WACC 6.76% 5.1% 7.7%Terminal ValueFCF at the End of the Forecasting Period $345.8 $357.0 $329.1Exit Multiple 8.5x 6.8x 6.3x

Terminal Value $2951.7 $2421.0 $2075.0Discount Factor 0.72 0.78 0.69

Present Value of Terminal Value $2128.4 $1883.2 $1433.4% of Enterprise Value 81.8% 75.1% 58.6%

Enterprise Value $2602.2 $2507.5 $2446.6

Implied Equity Value and Share PriceEnterprise Value $7,556.3Less: Total Debt 2,000.0Less: Preferred Securities -Less: Noncontrolling Interest 39.0Plus: Cash and Cash Equivalents 67.0

Implied Equity Value $5584.3Fully Diluted Shares Outstanding 116.6

Implied Share Price $47.90 in millions, except per share data

25