1. CFA Challenge
Capital University
Matt Claborn
Nolan Gladieux
Logan Stout
Tanner Segro

2. Business Description
• Founded in 1938
• Declared bankruptcy in 2007 due
to high volume of asbestos lawsuits
• Management has stayed the same
since bankruptcy
• FY 2015 earnings exceeded
expectations
34%
34%
32%
Percent of Revenue - 2015
Roofing
Insulation
Composites
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
Owens
Corning (OC)
Roofing
99% U.S./Canada
Insulation
84% U.S./Canada
Ind. Comp.
39% U.S./Canada

3. Industry Overview
• 3 major competitors – Combine
for 90% of U.S. market
• Asphalt 1 of 3 raw materials
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
Owens
Corning (OC)
Roofing
99% U.S./Canada
Insulation
84% U.S./Canada
Ind. Comp.
39% U.S./Canada
• Largest U.S. manufacturer
• 80% of sales from new
construction
• Mostly private and Chinese
competition
• Capacity driven pricing due to
fixed cost investment
• Recent acquisition - $80M price
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Percentage of Total Earnings
COMPOSITES TOTAL BUILDING MATERIALS
30% Average Composites % of Earnings

4. Investment Summary
• Positive near term factors:
• Tight composite capacity
• Operating above 90%
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion

5. Investment Summary
• Positive near term factors:
• Tight composite capacity
• Operating above 90%
• U.S. GDP Expansion Forecast
• 2.0 - 2.5% increase for 2016-2018
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
4.1%
1.0%
1.8%
2.8%
3.8%
3.3%
2.7%
1.8%
-0.3%
-2.8%
2.5%
1.6%
2.2%
1.5%
2.4%2.3%2.5%2.3%
2.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
U.S. GDP Growth

6. Investment Summary
• Positive near term factors:
• Tight composite capacity
• Operating above 90%
• U.S. GDP Expansion Forecast
• 2.0 - 2.5% increase for 2016-2018
• Increasing U.S. Housing Starts
• 10% YoY increase through 2017
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
1
10
100
1000
10000
TotalU.S.HousingStarts(millions)
U.S. Housing Starts
Housing Starts - US

7. 0
500
1000
1500
2000
2500
3000
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
SquaeFeet
U.S. Median New Home SquareFootage
Investment Summary
• Positive near term factors:
• Tight composite capacity
• Operating above 90%
• U.S. GDP Expansion Forecast
• 2.0 - 2.5% increase for 2016-2018
• Increasing U.S. Housing Starts
• 10% YoY increase through 2017
• Continued Increase in Home Size
• ~25% increase since 2000
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion

8. $0
$20
$40
$60
$80
$100
$120
$140
$160
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
West Texas Crude Oil Price per Barrel
Investment Summary
• Positive near term factors:
• Tight composite capacity
• Operating above 90%
• U.S. GDP Expansion Forecast
• 2.0 - 2.5% increase for 2016-2018
• Increasing U.S. Housing Starts
• 10% YoY increase through 2017
• Continued Increase in Home Size
• ~25% increase since 2000
• Low oil price
• Lowest price in 12 years
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion

9. Valuation
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
• $61-$65 using DCF
• Rev. increase 6.6%, 4.7%, and 2.7% 2016-18
• Op. costs increase 2.5%, 2.4%, and 2.1% 2016-18
Bull
• $40-$45
• Sales and operating costs match prior 5 year avg.Base
• $33-$35
• Assumes no growth in US Housing Starts, and US
GDP at half of current estimatesBear

10. Valuation
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
• Validated with Monte Carlo Simulation
• Calculated beta: 1.25
• 9 years with S&P 500
• DDM not appropriate
• Limited dividend history
Monte-Carlo Simulation

11. Financial Analysis
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
• Increasing EBIT and net margins
• DuPont Analysis
• Total Asset Turnover
• Net Profit Margins
• Consistent inventory management
0
20
40
60
80
100
120
2010-12 2011-12 2012-12 2013-12 2014-12 2015A
Days Inventory On Hand
OC MHK PPG

12. Financial Analysis
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
• Maintaining a BBB- Credit Rating
• No more levered than the
industry
31%
69%
Capital Structure 2010
Debt
Equity
0%
10%
20%
30%
40%
50%
60%
2007 2008 2009 2010 2011 2012 2013 2014 2015
Industry Debt Structure
PPG OC MHK
35%
65%
Capital Structure 2015
Debt
Equity

13. Economic
Slowdown
Competitive
Pricing
Bankruptcy
Credit
Downgrade
Commodity
Pricing
Interest Rate
Environment
Investment Risks
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion

14. Summary and Conclusion
An investment operation is one which upon
thorough analysis promises safety of principal
and adequate return (Graham, 1973)
1. Thoroughly analyze the company the
soundness of its business
• No additional risks compared to competitors
• Bankruptcy a one time event
2. Deliberately protect against serious
losses
• Base is likely worst case
3. Aspire to adequate, not extraordinary
performance
• Bull is meeting current macro expectations
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
Current Price:
$40.52
(2/12/2016)
Price Target:
$61+
(51% Increase)
Recommendation:
Buy

15. Appendix

16. Is the firm generating sufficient profits?
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
Appendix
Measure Calculation 5-Yr Avg. 2010 2011 2012 2013 2014
Gross Margin Sales – Cost of Goods Sold $945 $956 $1,028 $797 $966 $976
EBIT Net Income + Interest + Taxes $304 $206 $461 $74 $385 $392
EBITDA Net Income + Interest + Taxes + Dep./Amor/ $628 $526 $779 $423 $717 $696
Earnings Per Share (EPS) Net Income / Average Shares Outstanding $2.76 $7.94 $2.35 -$0.16 $1.74 $1.92
Gross Margin % (Sales – Cost of Goods Sold) / Sales 18.1% 19.1% 19.3% 15.4% 18.2% 18.5%
Profit Margin % Net Income / Sales 6.2% 18.7% 5.2% -0.4% 3.9% 4.3%
Return On Assets (ROA) Net Income / Average Total Assets 4.3% 13.0% 3.7% -0.3% 2.7% 3.0%
Return On Invested Capital (ROIC) Net Income / Average(Long Term Liab. + Tot. Eq.) 5.0% 15.0% 4.2% -0.3% 3.1% 3.4%
Return On Equity (ROE) Net Income / Average Shareholder Equity 8.8% 25.6% 7.5% -0.5% 5.4% 6.1%

17. How efficiently is the firm utilizing its assets?
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
Appendix
Measure Calculation 5-Yr Avg. 2010 2011 2012 2013 2014
Working Capital Current Assets – Current Liabilities $713 $453 $728 $706 $856 $824
Working Capital Turnover Sales / Average (Current Assets – Current Liabilities) 7.3 11.03 7.33 7.33 6.19 6.40
Asset Turnover Sales / Average Total Assets 0.70 0.70 0.71 0.68 0.69 0.70
A/R Turnover Sales / Average Accounts Receivable 8.4 9.2 8.7 8.6 7.8 7.8
Days Sales Outstanding (DSO) 365 /Accounts Receivable Turnover 44 40 42 42 47 47
Inventory Turnover Cost of Goods Sold / Average Inventory 5.6 6.5 5.4 5.6 5.3 5.3
Days Inventory On-Hand 365 / Inventory Turnover 65 56 67 66 68 69

18. How effectively is the firm using its financial capital?
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
Appendix
Measure Calculation 5-Yr Avg. 2010 2011 2012 2013 2014
Current Ratio Current Assets / Current Liabilities 1.75 1.47 1.80 1.78 1.86 1.84
Acid Test Ratio (Cash + Accounts Receivable) / Current Liabilities 0.72 0.63 0.73 0.72 0.75 0.75
Debt Ratio Total Liabilities / Total Assets 0.51 0.49 0.51 0.53 0.50 0.51
Debt-to-Equity Total Liabilities / Total Equity 1.04 0.96 1.03 1.14 1.02 1.05
Assets-to-Equity Total Assets / Total Equity 2.04 1.96 2.03 2.14 2.02 2.05
Times Interest Earned EBIT / Interest Expense 2.72 1.87 4.27 0.65 3.44 3.44
Free Cash Flow CF from Op. Act. + CF from Inv. Act. $85.20 $239 -$156 $77 $111 $155
Free Cash Flow % Free Cash Flow / Revenue 1.63% 4.78% -2.92% 1.49% 2.10% 2.94%

19. Is the firm creating appropriate shareholder value?
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
Appendix
Measure Calculation 5-Yr Avg. 2010 2011 2012 2013 2014
PE Ratio Market Price Per Share / Earnings Per Share 17.00 3.92 12.23 0.00 23.44 18.57
Market Capitalization Market Price / Share x Num. Shares Outstanding $5,507 $0 $0 $0 $0 $0
Market Value Added (MVA) Total Market Value – Total Equity $1,833 -$3,648 -$3,701 -$3,538 -$3,793 -$3,692
Dividend Yield Ratio Dividends per Share / Market Price per Share 1.45% 0.00% 0.00% 0.00% 0.00% 0.00%
Dividend Payout Dividends / Net Income 25% 0% 0% 0% 0% 0%
Price to Sales Market Price Per Share / Revenue Per Share 1.06 0.73 0.63 0.87 0.90 0.80

20. WACC
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
Table 3: WACC Analysis
Risk Free Rate 2.26%
Calculated Beta 1.25
Market Risk Premium 6.63%
CAPM 10.55%
Weight of Equity 73%
Weighted Cost Equity 7.74%
Avg. Bond Market Value 5.35%
Tax Rate 20.79%
Weight of Debt 27%
Weighted Cost of Debt 1.13%
Weighted Cost Equity 7.74%
Weighted Cost Debt 1.13%
WACC 8.87%

21. Valuation – Bull Case
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
Appendix
Year 2015E 2016E 2017E 2018E 2019E 2020E Terminal
Revenue $5,343 $5,696 $5,963 $6,124 $6,210 $6,297
Operating Costs (Revenue - EBIT) $4,843 $4,964 $5,083 $5,190 $5,216 $5,242
Taxes $135 $88 $211 $224 $288 $306
Tax Percent (Taxes / Net Income) 12.0% 12.0% 24.0% 24.0% 29.0% 29.0%
Net Investment (Net Investing Cashflow - Depreciation) $83 $0 $0 $0 $0 $0
Net Investment % (Net Investment / Revenue) 1.6% 0.0% 0.0% 0.0% 0.0% 0.0%
Chg in Working Cap.
(Cur. Ass. Year 1 - Curr. Liab. Year 2) -
(Cur. Ass. Year 1 - Curr. Liab Year 1) $37 $93 $93 $93 $93 $93
FCF (Rev. - Op. Costs - Taxes - Net Inv. - Chg. In Working Cap) $245 $551 $576 $617 $613 $656 $10,303
Time Horizon 3-yr 5-yr
Enterprise Value $7,484,060,833 $7,178,681,117
Shares Outstanding 116,470,000 116,470,000
Price Target $64.26 $61.64

22. Valuation – Base Case
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
Appendix
Year 2015E 2016E 2017E 2018E 2019E 2020E Terminal
Revenue $5,343 $5,418 $5,494 $5,571 $5,649 $5,728
Operating Costs (Revenue - EBIT) $4,843 $4,867 $4,892 $4,916 $4,941 $4,965
Taxes $135 $66 $145 $157 $205 $221
Tax Percent (Taxes / Net Income) 12.0% 12.0% 24.0% 24.0% 29.0% 29.0%
Net Investment (Net Investing Cashflow - Depreciation) $83 $0 $0 $0 $0 $0
Net Investment % (Net Investment / Revenue) 1.6% 0.0% 0.0% 0.0% 0.0% 0.0%
Chg in Working Cap.
(Cur. Ass. Year 1 - Curr. Liab. Year 2) -
(Cur. Ass. Year 1 - Curr. Liab Year 1) $37 $93 $93 $93 $93 $93
FCF (Rev. - Op. Costs - Taxes - Net Inv. - Chg. In Working Cap) $245 $392 $365 $405 $410 $449 $7,895
Time Horizon 3-yr 5-yr
Enterprise Value $5,163,840,482 $4,725,373,589
Shares Outstanding 116,470,000 116,470,000
Price Target $44.34 $40.57

23. Valuation – Bear Case
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
Appendix
Year 2015E 2016E 2017E 2018E 2019E 2020E
Revenue $5,343 $5,438 $5,539 $5,635 $5,725 $5,811
Operating Costs (Revenue - EBIT) $4,843 $4,903 $4,968 $5,028 $5,088 $5,149
Taxes $135 $64 $137 $146 $153 $159
Tax Percent (Taxes / Net Income) 12.0% 12.0% 24.0% 24.0% 24.0% 24.0%
Net Investment (Net Investing Cashflow - Depreciation) $83 $0 $0 $0 $0 $0
Net Investment % (Net Investment / Revenue) 1.6% 0.0% 0.0% 0.0% 0.0% 0.0%
Chg in Working Cap.
(Cur. Ass. Year 1 - Curr. Liab. Year 2) -
(Cur. Ass. Year 1 - Curr. Liab Year 1) $37 $93 $93 $93 $93 $93
FCF (Rev. - Op. Costs - Taxes - Net Inv. - Chg. In Working Cap) $245 $378 $341 $369 $391 $410
Time Horizon 3-yr 5-yr
Enterprise Value $4,060,676,518 $3,816,847,550
Shares Outstanding 116,470,000 116,470,000
Price Target $34.86 $32.77

24. Multiple Linear Regression – Total Bldg Materials Sales Initial
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
Appendix
SUMMARY OUTPUT TOTAL BUILDING MATERIALS
Regression Statistics Regre
Multiple R 0.941954803
R Square 0.887278851
Adjusted R Square 0.84500842
Standard Error 349.9243637
Observations 23
ANOVA
df SS MS F Significance F
Regression 6 15421373.99 2570228.999 20.99053249 9.4977E-07
Residual 16 1959152.966 122447.0603
Total 22 17380526.96
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept -3767.823534 4913.485029 -0.76683322 0.454347572 -14183.9465 6648.299416 -14183.9465 6648.299416
Housing Starts 0.112589543 0.032951011 3.416876801 0.003532102 0.042736522 0.182442565 0.042736522 0.182442565
U.S. GDP - AVERAGE 0.235494806 0.209436364 1.124421765 0.277420905 -0.20849045 0.679480063 -0.20849045 0.679480063
Producer Price Index (Asphalt) 12.72645558 9.474461789 1.343237839 0.197938691 -7.35850618 32.81141733 -7.35850618 32.81141733
China GDP - AVERAGE -0.00181447 0.001332834 -1.36136277 0.192264033 -0.00463995 0.001011011 -0.00463995 0.001011011
U.S. Unemployment Rate Average -31.22599436 104.7669102 -0.29805207 0.769499017 -253.321923 190.8699339 -253.321923 190.8699339
U.S. Median Weekly Earnings 3.487190146 20.37816303 0.171123871 0.866271793 -39.7125856 46.68696594 -39.7125856 46.68696594

25. Multiple Linear Regression – Total Bldg Materials Sales Final
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
Appendix
SUMMARY OUTPUT TOTAL BUILDING MATERIALS
Regression Statistics
Multiple R 0.924022853
R Square 0.853818233
Adjusted R Square 0.83989616
Standard Error 347.9472165
Observations 24
ANOVA
df SS MS F Significance F
Regression 2 14849719.38 7424859.692 61.32838355 1.70364E-09
Residual 21 2542412.575 121067.2655
Total 23 17392131.96
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept -2520.401851 539.1752296 -4.67455052 0.000129688 -3641.67812 -1399.12558 -3641.67812 -1399.12558
Housing Starts 1.257373201 0.169459854 7.419888394 2.69374E-07 0.904962144 1.609784259 0.904962144 1.609784259
U.S. GDP - AVERAGE 0.330756562 0.033631356 9.834767234 2.5917E-09 0.260816328 0.400696796 0.260816328 0.400696796

26. Multiple Linear Regression – Total COGS Final
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
Appendix

27. Linear Regression Example – Total Sales vs. U.S. GDP
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
Appendix
y = 0.4109x - 450.21
R² = 0.7465
0
1000
2000
3000
4000
5000
6000
7000
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
OCTotalSales
U.S. GDP (millions)
Total Sales vs. U.S. GDP (1991-2014)

28. Linear Regression Example – Total Sales vs. U.S. GDP
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
Appendix

29. Linear Regression Example – Total COGS vs. West Texas Crude Oil Price
Business
Description
Industry
Overview and
Competitive
Positioning
Investment
Summary
Valuation
Financial
Analysis
Investment
Risks
Summary
and
Conclusion
Appendix
y = 19.336x + 2774.6
R² = 0.5267
0.0
1000.0
2000.0
3000.0
4000.0
5000.0
6000.0
$0.00 $20.00 $40.00 $60.00 $80.00 $100.00 $120.00
Total COGS vs. WestTexas Crude Price
Series1 Linear (Series1)