The document recommends buying shares of Owens Corning, setting a target price of $50.48 per share based on the average of three valuation methods. It provides an overview of Owens Corning's business segments and the outlook for each industry. Financial forecasts show increasing free cash flow and earnings per share through 2019. The recommendation is based on the company's leadership positions, earnings growth, cost cutting initiatives, and upside to the $50.48 target price.

1. NYSE: Owens Corning
Date: April 12, 2016
CFA Research Challenge - 2016 ▪ Ohio State University, Columbus Ohio

2. 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
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
$20.0
$25.0
$30.0
$35.0
$40.0
$45.0
$50.0
$55.0
2010
2011
2012
2013
2014
2015
2016
Millions
Share Price and Volume

3. Market Profile
34%
34%
32%
Revenue by Segment
Composites Insulation Roofing
Price - (April 08, 2016) $48.68
Price at Initiation - (February 12, 2016) $40.52
52- week price range
Adj. Beta 0.97
Market cap. (US$ m) $4,724.1
Enterprise value (US$ m) $7,542.8
Dividend Yield 1.8%
Return On Equity 4.5%
EPS 2015 $2.79
P/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

4. Business Description
Composites
 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 Analysis
Business
Description
Financial
Analysis 4

5. 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
0.5
1.7
0.8
1.7
0.8
0.5
0.0
0.5
1.0
1.5
2.0
2005-2009 2010-2015(E) 2016(E)-2018(E)
MillionsofTons
Estimated Global Demand/Capacity
Change in global demand Change in global capacity
Business
Description
Industry Valuation Risk Analysis
Financial
Analysis 5

6. Insulation Industry
50
100
150
200
2010 2011 2012 2013 2014 2015
Indexed,2010=100
New Housing Starts & Existing Home Sales
New Housing Starts Existing Home Sales
Business
Description
Valuation Risk Analysis
Financial
Analysis
Industry
 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

7. Roofing Industry
11 11 11 14 17 18 19 22
27 28
109
97
111 104 94 89 88
90
89 89
-15%
-10%
-5%
0%
5%
10%
15%
0
25
50
75
100
125
2009 2010 2011 2012 2013 2014 2015(f) 2016(f) 2017(f) 2018(f)
MMSq.
U.S. Asphalt Shingle Market Demand
New Construction Re-Roofing Growth ( Right )
Business
Description
Valuation Risk Analysis
Financial
Analysis
Industry
 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

8. FinancialAnalysis
Business
Description
Industry
Financial
Analysis
Valuation Risk Analysis
$3.19
$3.47
$4.31
$5.04 $4.93 $4.98
$3.0
$3.5
$4.0
$4.5
$5.0
$5.5
2014 2015(f) 2016(f) 2017(f) 2018(f) 2019(f)
Unlevered Free Cash Flow per Share
$1.91
$2.40
$3.26
$3.71 $3.67
$3.81
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
2014 2015(f) 2016(f) 2017(f) 2018(f) 2019(f)
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

9. FinancialAnalysis
Business
Description
Industry
Financial
Analysis
Valuation Risk Analysis
1.8 1.8 1.9 2.0 2.0 2.1 2.2 2.3
5%
4%
7%
9%
10% 11%
9% 9%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
2012
2013
2014
2015(f)
2016(f)
2017(f)
2018(f)
2019(f)
Composite
Revenue EBIT Margin
1.4 1.6 1.7 1.8 1.9 2.1 2.2 2.4
-3%
2%
5%
7%
9% 9% 9% 9%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
2012
2013
2014
2015(f)
2016(f)
2017(f)
2018(f)
2019(f)
Insulation
Revenue EBIT Margin
2.0 1.9 1.7 1.8 1.8 1.9 2.0 2.1
17%
16%
12%
14%
15% 16%
15%
13%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
2012
2013
2014
2015(f)
2016(f)
2017(f)
2018(f)
2019(f)
Roofing
Revenue EBIT Margin
Billions Billions Billions
9

10. 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
$40.0 $45.0 $50.0 $55.0 $60.0
Relative Valuation
Pro-Forma Financial Statement
Sum-of-Parts
Implied Price Ranges
$58.71
$44.69 $53.94
$53.59$46.19
$49.31
Business
Description
Industry Risk Analysis
Financial
Analysis
Valuation
10

11. Relative Valuation
Business
Description
Industry Risk Analysis
Financial
Analysis
Valuation
Company Ticker
Large-Cap
PPG Industries PPG
CRH Public Limited Company CRH
Mid-Cap
RPM International Inc. RPM
Carlisle Companies Incorporated CSL
USG Corporation USG
Beacon Roofing Supply Inc. BECN
Small-Cap
Patrick Industries, Inc. PATK
Bluelinx Holdings Inc. BXC
Comps EV/EBITDA P/E
Median 10.5x 23.2x
Average 12.3x 24.5x
High 12.8x 32.8x
Low 9.4x 16.8x
Implied Share Price
EV/EBITDA $57.67
Forward 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

12. DCFAssumptions
Business
Description
Industry Risk Analysis
Financial
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
Assumptions
Pro-Forma Financial Statement DCF
Exit Multiple (EV/EBITDA) 9.4x
Weighting 50.0%
Perpetual Growth Rate 3.3%
Weighting 50.0%
Firm-Wide WACC 7.4%
Sum-of-Parts DCF
Exit Multiple
Composites 8.5x
Insulation 6.8x
Roofing 6.3x
Segment WACC
Composites 6.74%
Insulation 5.14%
Roofing 7.65%
12

13. International &
Other Uses
26.0%
North American Residential
51.8%
North American Industrial &
Commercial
22.2%
Firm-Wide Sales
By region and application
Risks
Business
Description
Industry Valuation Risk Analysis
Financial
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 $20
$40
$60
$80
$100
$120
2H14
1H15
2H15
1H16
Crude Oil Spot Prices (WTI, per barrel)
13

14. Recommendation: Buy
Upside
Intrinsic 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

15. 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

16. Capacity Expansion in Fiberglass industry
3.6
1.1
0.3
1.3
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
2005-2011 2012-2018(f)
Billions
Expenditure on Capacity
Additions/Rebuilds
Additions Rebuilds
 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

17. 80
90
100
110
120
130
$400
$425
$450
$475
$500
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
Millions
Composite Sales U.S. Dollar Index
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
10%
10%
10%
11%
5%
7%
2%
5%
2%
7%
5%
8%
6%
7%
7%
11%
13%
13%
12%
10%
0%
3%
6%
9%
12%
15%
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
Operating Margin
USDAppreciation 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

18. 69%
14%
10%
5% 2%
Asphalt Components Metal Tile Other
0%
20%
40%
60%
80%
Shingle Market by Materials
$9,000
$16,000
$18,000 $18,000
$21,000
$29,000
$0
$10,000
$20,000
$30,000
$40,000
Asphalt Tile Metal Wood Composite Slate
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

19. 33%
33%
14%
11%
7%
2%
Leaks
Old
Weather Damage
Upgrade Appearance
Deteriorating
Other
0% 10% 20% 30% 40%
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

20. -10%
0%
10%
20%
30%
40%
$0
$200
$400
$600
$800
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
Millions
Roofing Sales New Housing Starts (YoY) Existing Home Sales (YoY)
-5.0%
-2.5%
0.0%
2.5%
5.0%
7.5%
-30%
-20%
-10%
0%
10%
20%
30%
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
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

21. $331
$340
$384
$413
$330
$415
$431
$466
$355
$447
$454
$490
$379
$451
$502
$518
-10%
0%
10%
20%
30%
40%
$0
$100
$200
$300
$400
$500
$600
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
Millions
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

22. R² = 0.6551
$250
$350
$450
$550
100 150 200 250 300 350
Millions
Unit in Thousands
New Housing Started vs Owens Corning Insulation Sales
R² = 0.5057
$250
$350
$450
$550
10 11 12 13 14 15 16 17Millions
Unit in Millions
Existing Home Sales vs Owens Corning Roofing Sales
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

23. DuPontAnalysis
 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

24. DCFAssumptions
2015(f) 2016(f) 2017(f) 2018(f) 2019(f)
Composite
Sales (% 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%
Insulation
Sales (% 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%
Roofing
Sales (% 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

25. DCFAssumptions
Composite Insulation Roofing
Cumulative Present Value of FCF $473.8 $624.3 $1013.2
WACC 6.76% 5.1% 7.7%
Terminal Value
FCF at the End of the Forecasting Period $345.8 $357.0 $329.1
Exit Multiple 8.5x 6.8x 6.3x
Terminal Value $2951.7 $2421.0 $2075.0
Discount 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 Price
Enterprise Value $7,556.3
Less: Total Debt 2,000.0
Less: Preferred Securities -
Less: Noncontrolling Interest 39.0
Plus: Cash and Cash Equivalents 67.0
Implied Equity Value $5584.3
Fully Diluted Shares Outstanding 116.6
Implied Share Price $47.90 in millions, except per share data
25