1. 1
CFA Institute Research Challenge
hosted by
Local Challenge CFA Society Columbus and CFA Society
Cincinnati
Capital University

2. CFA Student Research Current Price: $42.56 (1/15/2016)
Industrial Goods Sector, General Building Materials Industry Price Target: $61+ (43% increase)
Owens Corning, NYSE Recommendation: Buy
2
Date: 1/18/2016 Headquarters: Toledo, OH Ticker - NYSE: OC
Executive Summary
Owens Corning (OC) has three distinct businesses: Roofing, insulation, and industrial composites. The direct
customers in the roofing and insulation markets are primarily U.S. residential and commercial resellers, who sell
mostly to U.S. building contractors who install the materials. The direct customers in the composite business
are mostly industrial business based outside the U.S. that use the composites for raw materials to manufacture
other products.
The primary drivers of earnings at OC are the roofing and insulation businesses as they have accounted for70-
85% of total EBIT over the last five years. This continues to be true even despite the $640M composites
acquisition from Saint-Gobain in 2007. There are four main positive factors that impact earnings in OC’s
businesses in the near (1-3 years) and medium (3-5 years) term:
1. Improving U.S. construction market and housing starts
2. Improving U.S. GDP above 2.0% annual increases
3. Tight global industrial composites capacity above 90%
4. Decreased oil costs below $50/barrel
A Bull, Base and Bear case were developed for OC with the following assumptions:
- Bull ($61-$65): The bull case assumes that OC sales and costs will return to the long term mean based
on regression models with R2 values above 0.8. The result of these progressions to the mean are annual
revenue increases of 6.6%, 4.7% and 2.7% on operating cost increases of 2.5%, 2.4%, and 2.1% in
2016, 2017 and 2018, respectively. The Capex and tax assumptions,which are the same in each case,
are that net investment will equal depreciation based on management statement, while experiencing a
2016 tax rate close to 12% that eventually returns to the longer term rate of 28%.
- Base ($40-$45): The base case assumes OC will be able to maintain sales and operating cost averages
the same as the last five years and that Net Investment and taxes are the same as the bull case.
- Bear ($33-$35): The bear case assumes no U.S. Housing Start growth and U.S. GDP growth that is
half of current estimates. The result of these inputs are revenue increases of 1.8%, 1.8%, and 1.7% and
operating cost increases of 1.2%, 1.3%, and 1.2% in 2016, 2017 and 2018, respectively. It assumes
Capex and taxes are the same as the bull case.
We believe that there is significant likelihood of realizing the Bull case,and believe that the Base case is the
worst case scenario that could be realized over the ensuing 1 to 3-year period. The Bear case assumptions are
most unlikely and we feel that there is little chance of this scenario. Because of this, we rate OC a “Buy” with
the potential for 20% or greater share price appreciation over the coming 1 to 3-year period.
There are some risks associated with OC that should not be overlooked:
1. Global economic slowdown: Broad U.S. and global economic slowdown that is 50% or more below
current forecasts;
2. Raw material and commodity pricing increases: An increase in commodity costs of 50% or more over
current prices in the ensuing 3-5-year period;
3. Competitive pricing: Highly competitive pricing that significantly decreases year-over-year revenue by
5% or more.
Despite OC’s bankruptcy from 2000 to 2006, they have been able to maintain an investment grade credit rating
of BBB-, which has resulted in sufficient access to debt markets and a healthy balance sheet. They have also
been able to maintain adequate profit margins and return on equity comparable to other public companies in the
housing and industrial products manufacturing industries.
After our analysis of the company and its market, we feel that OC offers protection against serious losses and
can achieve adequate performance by keeping pace with current U.S. GDP and residential and commercial
construction market forecasts,while also experiencing the bottom line benefit of near term commodity cost
decreases. As a result, we rate OC a “buy” with a price target above $61/share.

3. 3
Figure 1
Source: OC Q3 2015 Presentation
Business Description
Owens Corning (OC) was originally founded in 1938 when it was
discovered how to make fiberglass on an industrial level. OC acquired
several businesses overthe years,and currently operates three businesses:
roofing, insulation and industrial composites. OC emerged from bankruptcy
in 2006 which was related to significant asbestos claims due to fiberglass
tape which was used heavily industrywide in the past. After emerging from
bankruptcy, OC made two large transactions that left them in their current
form: a $371M sale of its vinyl siding business,and a $640M acquisition of
Saint-Gobain’s industrial composite business to OC’s own industrial
composite business. All current businesses are largely commodity based,
and OC generally does not contain a competitive market advantage other
than their place as one of the top three suppliers in each market. Each
market is dominated by a handful of companies that comprise nearly 90% of
each segment.
It is important to note that 70-85% of all OC’s EBIT comes from their
roofing and insulation businesses,which are based primarily in the U.S.
The remaining 15-30% of EBIT is derived from the composite business,
even though it consistently produces 30-35% of OC’s total revenue.
Management
OC has had the same CEO and Chairman of the Board of Directors, Michael Thaman (51), since emerging from
bankruptcy in 2007. He has also been the Chairman of the Board of Directors, beginning in April, 2002. In
2007, there was one large acquisition of St. Gobain’s composite business for$640M and one large sale of OC’s
vinyl siding business for$371M, but both of these transactions occurred just before Mr. Thaman took over as
CEO. The large merger and acquisition activity has mostly subsided since 2007, with no appreciable
acquisitions since the beginning of Mr. Thaman’s tenure.
Under Mr. Thaman’s tenure, management has shown a willingness to return cash to shareholders through the
implementation of a dividend in 2014 and share repurchases beginning in 2012. Through statements at investors
presentations,management has also stated a goal of increasing the dividend at an average of 6% going forward.
All of these add up to a management culture that rewards investors by returning excess cash to shareholders.
Industry Overview and Competitive Positioning
Roofing
1. Competition: There are three major competitors that make up 90% of
the U.S. market. These competitors are Tamko, GAF/ELK, and
Certainteed. In addition to these competitors, there are four more
smaller competitors, which are IKO, Atlas, Pabco, and Malarkey. OC
has been at the top of the industry and continues to be one of the major
players in the industry.
2. Demographics: Primary customers are large wholesalers that deal
primarily to roofing and home building contractors,home centersupply
stores,roofing contractors,lumberyards, retailers, and other roofing
manufacturers (2014 Annual Report).
3. Supply/Demand: The re-roofing demand over the past few years has
been sluggish, and housing activity forecasts support some demand
growth. OC has delivered average operating margins in excess of 20%
during 2009-2013 period (Figure 1). In 2014 soft demand and
competitive activity put pressure on profit margins compared to prior
years. They project for the finish of this 2015 that they will have a
strong market position due to asphalt cost deflation, increasing market
demand and price appreciation. Last, significant weather events can

4. 4
Figure 4
Source: OC Q3 2015 Presentation
Figure 2
Source: OC Q3 2015 Presentation
Figure 3
Source: OC Q3 2015 Presentation
have an appreciable increase in sales for OC (Q3 InvestorPresentation,
October, 2015), which can unexpectedly increase sales and margins.
Insulation
1. Competition: OC’s competition is based in the U.S. in the insulation
markets as shipping insulation internationally is cost prohibitive. By
some reports, OC is the largest U.S. manufacturer of commercial and
residential insulation (2014 Annual Report). While OC does have the
PINK branded insulation, there is little differentiation between
competitors and minimal opportunities for premium pricing, especially
with the primary customers being contractors that are focused on their
own profit margins. Significant competitors in this segment include
CertainTeed Corporation (Saint-Gobain), Dow Chemical, Johns Manville
(Berkshire Hathaway), and Knauf Insulation (2014 Annual Report).
CertainTeed and Dow Chemical are the only two public competitors and
also produce a number of other, unrelated products.
2. Demographics: OC’s insulation business is primarily derived from the
U.S. and Canada (84%), with only 16% coming from international
markets, which are primarily Latin America and the Asia Pacific
regions. Within the U.S. and Canada, the primary drivers are new
residential construction (48% of revenue), commercial and industrial
construction (29% of revenue) and residential repair and remodeling
(24%) (Figure 2). Contractors and otherbusinesses are the primary
customers of OC through wholesale distributors.
3. Supply/Demand: The improving U.S. and Canadian housing markets
have positively impacted OC’s EBIT margins over the last three years as
the U.S. housing and commercial construction markets have improved
(Figure 3). Insulation pricing is generally determined by the amount of
capacity in use. When there is significantly more capacity than demand,
prices will fall in the short term to make use of the large fixed cost
investments. The result of this fall in prices is reduced EBIT margins as
was the case from 2008 to 2011 when domestic housing and commercial
construction was depressed.
OC has twelve insulation plants within the U.S. and Canada, with seven at
or near full capacity, four below full capacity and two that are not in
operation. OC is positioned to take advantage of the improving
construction markets demand with additional capacity, if necessary.
Industrial Composites
1. Competition: Significant competitors to the industrial composites
segment include China Fiberglass Co., Ltd., Chongqing Polycom
International Corporation Ltd (CPIC), Johns Manville, PPG Industries
and Taishan Glass Fiber Co., Ltd. PPG is the only public company of the
competitors, but produces a number of other products in addition to its
industrial composite business. Johns Manville is part of Berkshire
Hathaway and does not report individual results,however, it can be
assumed they are a strong competitor with ample access to inexpensive
resources.
OC believes that capacity will stay tight above 90% (Figure 4), and
therefore keep prices elevated in the near term (management statements,
October, 2015). However, demand has grown faster than capacity over
the last five years and they are also expecting capacity to grow faster than
demand in the future, driving prices down in the longer term 5-year period
(management statements,October 2015). Industrial Composites are
largely a commodity business and there are little to no differentiators

5. 5
Figure 5
Source: OC Q3 2015 Presentation
Figure 6
Source: OC Q3 2015 Presentation
conomic Data
within the industry,therefore there is little opportunity for OC to improve
market position and obtain premium pricing.
2. Demographics: OC’s fiberglass and Industrial Composites business is
based 39% in the U.S. and Canada. There is strong competition in China
for Industrial Composites. The primary industries for composite materials
are Construction (34%), Transportation (28%), Consumer Appliances
(16%), Industrial (13%) and Wind (9%) (Figure 5). Plants are spread
between the U.S., Canada, S. America (Brazil), Europe, India and Asia.
3. Supply/Demand: The Industrial Composites pricing is driven primarily
by how much capacity is in use. Currently just above 90% of capacity is
in use,meaning prices should stay elevated in the near term and ease in
the longer term as new capacity is added to compensate for demand
growing at roughly 5% per year (Figure 6). Manufacturers have a large
fixed cost investment in glass plants for the Industrial Composites
business,so when there is significant unused capacity,they are likely to
cut price in order to increase the percentage of capacity used. OC has
suspended melting capacity investments since 2012 and does not have
planned capacity increases and investments in the near term otherthan
those investments necessary to maintain current capacity levels.
Investment Summary
OC has near term positive factors that should continue to support its businesses in all three segments in the near
term: tight Industrial Composites capacity; continued U.S. GDP expansion; increasing U.S. Housing Starts; low
oil prices; and increasing U.S. new build home square footage.
In the commodity industrial composites industry, OC’s only primary
internationally derived business,we see OC able to maintain current sales
and profit margins amid tightening supply, which should keep prices elevated
in the near term and able to sustain current margin levels. We do not see any
near term catalysts that would drive the composite business appreciably
higher in the near term. The biggest near term risk to the Industrial
Composite business is a sharp global economic slowdown that would
adversely affect the current supply/demand balance and hurt pricing. Even
with a risk of international slowdown, Industrial Composites comprise only
15-35% of total EBIT, therefore the earnings at risk are far lower than those
in the roofing and insulation markets.
While Industrial Composites do not showmuch near term catalyst, roofing
and insulation have some positive near term developments that could help
push OC’s earnings higher because they compose the greatest share (70-85%)
of OC’s earnings. The two biggest positive factors for roofing and insulation
sales are continued U.S. GDP expansion at or above 2%, and U.S. Housing
Starts expanding at more than 10% year-over-year to an annual rate of 1.2-
1.4M home starts (from just over 1.1M in 2015). These are the two largest
drivers of OC’s roofing and insulation businesses as they are one of the three
largest manufacturers for both products in the U.S. and sell almost all
products in the U.S. and Canada. Additionally, because products are mostly
commodity, we expect OC to maintain their market share as long as they
maintain competitive prices. Additional positive factors for the roofing and
insulation businesses are the continued long term expansion of average U.S.
home square footage (Figure 7), as well as currently being in the midst of the
lowest home ownership rate of the last 45 years (Figure 8), which is likely
due for a reversal as wages finally begin to increase out of the most recent
Figure 7
Source: Federal Reserve Economic Data

6. 6
Source: Factset
Table 2: Cost of Debt
Bond Value Weight YTM
2024 Bond 392 39% 4.46%
2036 Bond 621 61% 5.92%
Total 1012.95 100% 5.35%
$0
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West Texas Crude Oil Price per Barrel
Figure 9
Source: Federal Reserve Economic Data
Source: Factset
Table 1: Capital Distribution
Market Value Equity $5.5B
Market Value Debt $2.0B
Total Capital $7.5B
recession. If the home ownership rate begins its return to normal levels, the
housing starts number could increase significantly above current estimates
providing additional benefit to the roofing and insulation segments of OC.
Last, the current energy and oil pricing environment (Figure 9) has
appreciably reduced OC’s costs – especially in the roofing segment where
asphalt is one of three main components and a crude oil derivative. The
benefits of these lower prices were observed in the Q3 2015 earnings beat,
and should continue to benefit profit margins for at least 6-12 months after
prices rise due to the amount of inventory on hand and the length of time for
the raw materials to process through the manufacturing system.
On top of positive macroeconomic factors in OC’s largest profit earning
businesses,management has also shown and increasing willingness to return
cash to shareholders through both the implementation of a dividend in 2014
as well as increasing the pace of share repurchases overthe last year. OC has
stated they intend to grow the dividend at around 6% per year going forward,
and they have 5.5M shares left to be repurchased underthe current
repurchase authorization from 2012. These actions will provide additional
benefit to OC investors above the intrinsic values of the various business
segments.
Valuation
Several valuation methods were evaluated including a 3-year discounted cash flow (DCF) model, a 5-year DCF
model, and a dividend discount model (DDM). However, because OC pays a relatively small dividend, and
does not have a significant dividend history,only the 3-year and 5-year DCF models were used to develop the
price target. OC is in a developed and stable a market, therefore only 3 and 5-year horizons were analyzed due
to the stable and low growth and were validated using a Monte Carlo simulation (Appendix 5).
Using the DCF models, three different cases were developed for sensitivity analysis:
1. Bull - Uses regression analysis forecasting with U.S. GDP and U.S. Housing Start average forecasts.
GDP forecasts were averaged from the World Bank, FRED, and IMF and the Housing Start forecasts
were averaged from FRED and the NAHB.
2. Base - Uses prior 5-year averages for increases (or decreases)in revenue and operating a costs
3. Bear - Uses regression with 0% growth in housing starts and GDP increases 50% below current
forecasts.
The company was broken into two parts for analysis because of the different end user markets:
Industrial Composites and Total Building Materials, which includes roofing, insulation and when it
existed, “other building products”. For each forecasted year in the 3 and 5-year DCF models the
following components that add to and detract from cash flow available to investors were estimated:
1. Revenue Growth – Computed from base years and expected future
growth rates.
2. Operating Costs – Revenue less EBIT.
3. Net Investment – Computed using Net Cash Flow from Investing
Activities less depreciation.
4. Taxes – Computed using forecast tax rates with carryforward tax
credits and national rates.
5. Change in Working Capital – Computed using a constant growth
rate from base years.
Full year 2014 and 2015 through Q3 were used as the base years for future
year estimates. Full year 2015 was estimated based on management guidance
for Q4 2015.
Other important factors in determining the price target were the terminal
growth rate, beta, and the weighted average cost of capital (WACC).

7. 7
Source: Team Calculations
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%
1. Terminal Growth - For all three DCF cases it was assumed to reach
the long term average U.S. GDP growth of 2.5%.
2. Beta - OC has a beta of 1.28, according to data from the past 11
years. To calculate the beta of OC, a data regression was performed
of OC versus the S&P 500 Index. Data was used from October 2nd,
2006 to October 23, 2015.
3. WACC - OC’s WACC of 8.87% was calculated using the current
market capitalization as compared to the outstanding market value of
debt (Table 1). The cost of debt used was based off the values from
the two most recently issued bonds,which expire in 2024 and 2036
(Table 2).
Using the values from the base, bull and bear cases,the following share price
ranges (without additions as a result of share repurchases) were developed by
case:
Bull (Table 4): $61 - $65
Base (Appendix 5): $40 - $45
Bear (Appendix 6): $33 - $35
Bull Case
Based on the above values and calculations, the following bull case was developed:
TABLE 4 – BULL CASE 5-YR ESTIMATES (MILLIONS)
*2015 values are estimated based on 2015 YTD reports and OC guidance from Q3 earnings call
Using the cash flow values from the figure above and WACC of 8.87% (based on a risk premium of 6.63% and
risk free rate of 2.26%), long term debt of $1,991M and cash and equivalents of $67M, the following enterprise
values and 3 and 5-year price targets were calculated:
DCF Constant Growth Model Validation
In order to validate our bull case, a second DCF model was developed using a constant growth rate to obtain an
intrinsic value for OC. We arrived at a price target of $62.64. The underlying assumption in this model is a
slightly elevated growth rate in FCF of 4.5%. This model is driven primarily by free cash flow, which drives
enterprise value (EV) using free cash flow at the growth rate and discounting it at the excess WACC over
growth. This model was formulated using inputs and guidance from historical performance, industry outlook
and assessment.More data on the calculation and inputs are in the appendix.
Valuation Price Target: $62.64
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

8. 8
Figure 12
Source: Morningstar Direct
Figure 10
Source: Team calculations
Figure 11
Source: Morningstar Direct
Figure 13
Source: Morningstar Direct
FinancialAnalysis
OC has been able to increase total revenue at 1.4% per year over the last five
years (2010-2014), while keeping operating cost growth to only 0.5% over
the same time period. Some of the lower cost growth was due to cost
reduction actions take in 2013 and 2014. Management does not believe that
there are any significant SG&A cost reduction actions in the near term that
will have a significant impact on cost growth or decline. The 1.4% sales
increase has come as U.S. GDP has grown at 1.9% over the same five-year
time period.
Predicted lines (Figure 10) are based on regression analysis of US GDP,
Housing Starts and OC Total Revenue (Appendix 5 and 6)
While there are no direct competitors in all of the exact same businesses as
OC, we can evaluate others that compete in some similar markets as well as
others that supply products for the housing industry. Comparable companies
are Mohawk Industries (MHK), a manufacturer of siding and flooring, PPG
Industries (PPG) a manufacturer of fiberglass and otherspecialty industrial
and commercial coatings,and Dow Chemical Company (DOW). Dow
Chemical Company was excluded from comparable analysis due to the recent
announcement of its merger with DuPont Chemical Company.
OC is competitive in most profit margin analysis, asset utilization, use of
financial capital and shareholder value areas when compared with MHK and
PPG. Their net margin (Figure 11), ROE (Figure 12), and ROIC (Appendix
7) is competitive with their comparable set:
OC also make good use of its assets by keeping inventories low (Figure 13)
and collecting quickly on sales (Appendix 7).
OC also makes good use of its financial capital and is operating without
increasing liabilities significantly (Appendix 7).
Lastly, OC is creating adequate shareholder that can be seen its competitive
price to earnings and price to sales ratios and how they have performed over
the prior 5 years (Figure 14).
With the favorable sales and commodity costs that are predicted for OC, the
P/E and P/S ratios are likely to improve as OC increases sales and earnings.
Based on the financial analysis we feel that there are no significant financial
risks to an investment in OC and that they create adequate shareholdervalue
while diligently managing finances to make the most of the capital on hand.
Their current price ratios also lead us to believe they are attractively price in
the market and favorable future conditions further improve these metrics.
Investment Risks
OC has several risks to their current share price and intrinsic value. Those
risks include:
1.Commodity Costs - The price of oil has a significant impact on the COGS
for both roofing and insulation. In roofing it is one of three products (the
other two are felt and glass pieces from 3M). While the steep decrease in
the price of oil has had a positive impact on OC’s earnings in the near term,
a reversal in the price decline would have the opposite effect and hurt OC’s
cash flow.

9. 9
Figure 14
Source: Morningstar Direct
0
20
40
60
2010-12 2011-12 2012-12 2013-12 2014-12 2015E
Price to Earnings
OC MHK PPG
0
10
20
30
40
50
60
1/4/2010 1/4/2011 1/4/2012 1/4/2013 1/4/2014 1/4/2015 1/4/2016
SharePrice
Owens Corningin the News
02/12/2014
Owens Corningannounces
firstdividend in 14 years
4/25/2012
Owens Corningannounces
sharebuyback program
10/22/2014
Owens Corningposts
5% revenue increase
11/04/2014
Moody's affirms Ba1 bond
ratingto Owens Corning
4/27/2011
Owens Corning Misses
EPS Estimates by 42.8%
2.Bankruptcy - OC announced on October 5, 2000 that the company was
filing for a chapter 11 bankruptcy.The purpose of this was to reorganize
and structure the debt from the liability of asbestos use.The company
stated that they have received more than 460,000 asbestos personalinjury
claims, and has agreed to pay more than $5 billion for asbestos-related
awards and settlements,legal expenses and claims processing fees.To
finance this endeavor, the company drew a $500 million debtor-in-
possession financing commitment from Bank of America. The company
fulfilled this commitment on October 30, 2006. OC then raised
$1,855,092,669.00 in its IPO that began on November 1, 2006.
3.Competitive Pricing - Because OC’s main competitors are private in the
roofing and insulation industry, it is difficult to forecast their pricing
strategies as share price appreciation may not necessarily be a focus. This
can result in unexpected decreases in revenue that OC cannot guard against
due to the commodity nature of its products.
4.Economic Slowdown
a. U.S. – Because 70-85% of EBIT is derived from roofing and insulation,
which are based primarily in the U.S., any slowdown in the U.S. would
have a significant impact on the roofing and insulation businesses for
OC. Any significant decreases below the current 1.4% growth would
decrease intrinsic value below $40/share, which would be a 15-20%
decrease in the current share value.
b.China - A continued slowdown in China will have some effect on the
revenue of the composite business both from lower sales and decreased
capacity, which will negatively impact prices, but the impact will be far
less than a similar slowdown in the U.S.
5.Interest Rate Environment – A substantialincrease in interest rates could
adversely affect OC’s core business. Rapid increases in rates result in
lower investment which will lead to lower levels of construction activity.
This will adversely affect demand for OC’s products. An increasing
interest rate environment will also make it more difficult for the company
to obtain debt capital. This could impact the company’s ability to make
large investments and add a higher interest expense burden if they acquired
new debt.In addition, OC’s ability to acquire new firms would be hindered
as the cost of debt would be more expensive.
6.Credit downgrade - Credit rating is crucially important to the company’s
cost of capital. A downgrade in credit rating could further increase the
interest burden on debt and make it more difficult for OC to obtain capital.
This may also violate debt covenant imposed on debt post-bankruptcy.

10. 10
Summary and Conclusion
An investment operation is one which, upon thorough analysis,promises safety of principal and an adequate
return (Graham, 1973). This consists ofthree equal elements of thorough analysis,deliberately protecting
against serious losses,and adequate performance. We have evaluated each of those in the following summary:
1. Thoroughly analyze the company, and the soundness of its underlying business, before buying;
Based on the Financial Analysis section we have determined that there are not significant risks associated
with OC that do not apply to other businesses. Aside from the asbestos litigation starting in the late
1990’s and continuing through its bankruptcy protection in the 2000-2006 period, OC’s underlying
business has produced reliable sales, costs and resulting earnings and cash flows. Going forward, we
believe these results will hold and do not foresee any additional risks that will impact OC
disproportionately from other businesses in the same industry,or the broader economy.
2. Deliberately protecting yourself against serious losses;
Serious decreases from the bull case would result if OC were to realize one or all of the following risks:
1. Broad U.S. and global economic slowdown that is 50% or more below current forecasts;
2. An increase in commodity costs of 50% or more over current prices in the 3-5-year period;
3. Highly competitive pricing that significantly decreases year-over-year revenue by 5% or more.
There are currently no substantialreasons to believe that any of these three risks will be realized in the
upcoming 3-5-year period. Even if one or more of these risks were to occur, resulting in our bear case
valuation, it would lead to a price target of $37-$41, or a roughly 20% decline in the current price. We
define serious loss as greater than 50% decline, and do not feel that there is risk of such decline due to
general consensus ofeconomic forecasts above 2% over the upcoming three years, predicted low
commodity costs,and recent competitive pricing that has left all competitors weary of further price
decreases.
3. Aspire to “adequate”, not extraordinary, performance.
Our Bull case is based on matching performance against currently predicted, average U.S. GDP increases
and U.S. Housing Starts, which we believe there is significant likelihood of realizing over the next 1 to 3-
year period. Our Base case is based on matching past 5-year performance, which we believe to be the
worst case scenario. The Bear cases is based on significantly underperforming current predictions, which
we believe to be the most unlikely scenario. Because our Bull case is based on simply meeting past
performance relative to U.S. GDP and U.S. Housing Starts, we believe that our most bullish scenario is
still an adequate performance, and not based on extraordinary conditions. In addition to the price targets,
OC offers a small dividend at around 1.4 - 1.6% annual yield and the potential for additional share
buybacks,which can also positively impact share price appreciation.
After our analysis of the company and its market, we feel that OC offers protection against serious losses and
can achieve adequate performance by keeping pace with current US GDP, residential and commercial
construction markets, while also experiencing the bottomline benefit of near term commodity cost decreases.
We rate OC a “buy” with a price target above $61/share.

11. 11
Appendix
Business Description
Appendix 1
Properties
OC properties are strategically located throughout the world dependent on the Business segment they are
serving. OC operates 29 manufacturing facilities in the Industrial Composites business segment. These
properties are located in nine different countries across the globe. All of these are wholly owned by OC except
for the Ibaraki, Japan facility, which is leased. OC building materials segment, which comprises of insulation
and roofing, operates out of 61 manufacturing facilities, primarily in North America. Insulation operates in 31 of
these facilities spanning across the United States, Canada and China. The roofing segment of Owen Corning
operations spans across 29 facilities, all located in the United States. The 61 facilities in the building materials
segment are wholly owned by OC. These properties are strategically located based on the demand for the
products in which they sell. Additionally, OC is headquartered out of a 400,000 square foot building in which
they lease. Development and research is conducted in Granville, Ohio, in which OC fully owns the 650,000
acres consisting of 20 structures.
Appendix 2
Strategy
Continue to capitalize on market upswing through investment: OC invested $130 million into a new glass non-
woven facility in Gastonia, North Carolina, in 2014. This facility will encompass state of the art manufacturing
coating capability. This facility will meet the increasing demand for glass non-woven products which serves the
construction and building materials segment.
Capitalize on growth in the Industrial Composites market: OC strives to produce differentiated products that
boost profits from enhanced efficiency. OC planned to launch 20 new products as part of their ambitious
Product Leadership agenda. Additionally, OC created a “Product Vitality Index” allowing them to monitor
value captured from new products relative to revenues from the entire portfolio. OC continues to strive for top
class quality and innovation through these initiatives.
Restructuring of organizational structure:
In the fourth quarter of 2014, OC eliminated the Building Materials Group structure. The new management
structure was as follows: Industrial Composites, Insulation and Roofing. This was done to create greater
efficiencies moving forward.
Continued focus on insulation segment: United States housing starts was up approximately 5% from 1.025
million starts in the fourth quarter of 2013. OC looks to capitalize on the improving US housing market through
product mix and pricing.

12. 12
Valuation
Appendix 3
1.1- For the DCF models, free cash flow was calculated using the following calculation:
Revenue - Operating Costs – Net Investment – Taxes – Change in Working Capital = Free Cash Flow
Revenue: Total revenue from 10K reports
Operating Costs: Revenue – EBIT
Net Investment: Cash flows from Investing Activities – Depreciation
Change in Working Capital: (Current Assets Year (n) – Current Liabilities Year (n)) - (Current Assets Year (n-
1) – Current LiabilitiesYear (n-1))
Terminal value was calculated as:
Free cash flow in final year * (1 + long term inflation rate of 2.5%) / (WACC – Risk Free Rate)
Appendix 4
Revenue Growth –
Base: Revenue growth for the base case was calculated using the historic increases from 2010-2014 as
the base case,which was 1.4% per year.
Bull: For the bull case revenue growth range, a multiple linear regression was used to evaluate
independent variables. Variables analyzed included U.S. GDP, U.S. housing starts,U.S.
unemployment rate, U.S. Median Weekly Earnings and Chinese GDP. The final model used best
correlated with U.S. GDP and U.S. Housing Starts with an R-squared value of 0.85, and associated p-
values of 2.0x10-7 (Appendix). Using this regression model resulted in revenue increases of 6.6% in
2016, 4.7% in 2017 and 2.7% in 2018.
Bear: For the bear case,the regression model was again used,but housing starts were kept flat for the
3-year and 5-year periods, GDP forecasts were reduced by 50%, and composite sales growth was held
to 50% of the 7-year average of 4.4%, or 2.2% per year. The resulting total revenue increases were
1.8% in 2016, 1.8% in 2017 and 1.7% in 2018.
Operating Costs - Operating Costs are determined by using revenue less EBIT in order to capture all costs that
will take away from cash flow to investors.
Base: For the base case,operating costs are assumed to continue increasing at the 5-year average of
0.5% per year.
Bull: For the bull case,and based on multiple linear regression modeling, Operating Costs also best
correlated with U.S. GDP, which resulted in Operating Cost Increases of 2.5% in 2016, 2.4% in 2017
and 2.1% in 2018 (Appendix).
Bear: For the bear case,housing starts were kept flat, US GDP was reduced 50% from current
forecasts and Operating costs were calculated using the regression model. Operating cost increases of
1.8% in 2016, 1.8% in 2017 and 1.7% in 2018 were calculated using the regression model.
Net Investment - Net investment will be a significant driver of OC’s intrinsic value. The previous five-year
average from 2010-2014 in net investment was ($17M) per year as depreciation has outpaced investing cash
flows. Based on OC guidance, the expectation in the near term is that depreciation and net investing cash flows
will be roughly equal (Appendix). Based on this we are modeling no increase or decrease to free cash flow as a
result of investing activities for any of the three cases.
Taxes - OC has significant carry-forward tax credits that can reduce its near term tax liability. While tax
percentage of revenue has averaged 24% of EBIT, OC estimates their tax liability to be 12% in 2016 and 2017
before returning to the normal 24% level.

13. 13
Change in Working Capital – It is assumed that OC will add the average from 2011-2014 of $93M per year
(1-2% of revenue) in more current assets than current liabilities for the entire 3 and 5-year periods in all of the
DCF scenarios.
WACC - OC’s WACC of 11.72% was calculated using the current market capitalization as compared to the
outstanding market value of debt. The cost of debt used was based off the values from the two most recently
issued bonds,which expire in 2024 and 2036 (Appendix). All cases use the same WACC.
Beta - OC has a beta of 1.28, according to data from the past 11 years. The data shows that the company has
little volatility in comparison to that of the S&P 500 Index. There is a small amount of volatility, but not enough
to scare off investors.To calculate the beta of OC, a data regression was performed of OC versus the S&P 500
Index. Data was used from October 2nd, 2006 to October 23, 2015. As time passed,the beta decreased in
volatility, due to the settling of the company’s bankruptcy situation.
Appendix 5
Base Case
Based on the regression modeling of the OC’s sales and costs ofgoods sold,there is significant upside to the
price targets if OC’s sales can progress to regression line and reach the forecasted sales increases of 6.6%, 4.7%,
and 2.7% in the upcoming three years (2016-2018) and operating costs of2.5%, 2.4%, and 2.1%. Based on
those modeled values, the 3 and 5-year price targets are as follows:
Base Case:
*2015 values are estimated based on 2015 YTD reports and OC guidance from Q3 earnings call
In addition to the 3 and 5-year DCF models, we also utilized a Monte Carlo simulation to analyze OC’s
potential high growth. The Monte Carlo simulates a range of potential outcomes for a multitude of variables to
determine OC’s intrinsic value. The underlying assumption in this bull case was a five year 6% free cash flow
growth. Key factors for this model include correlation of OC’s Sales with GDP, the 10 year treasury yield, and
the market risk premium. These inputs are essentialto the DCF given sensitivity of the model to its inputs.
150,000 simulations were run which covers changes in company specific and macroeconomic factors. These
inputs lead to a price target of $55.99. Within this analysis we concluded there was a 63.7% chance that the
stockwill trade above $50.
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

14. 14
The Monte Carlo simulation shows that based on the base case assumption there is an 87% chance of
the price appreciating above the current price level of $43 (as of market close on 1/14/2016). The
mean price target based on the simulation is $55.31, with a $9.39 standard deviation. The simulated
WACC ranged from 7.55% to 9.25% (from 8.87%), and the terminal growth ranged from 2.35% to
2.65% (from 2.5%).
Appendix 6
Bear Case
A bear case was developed using 0% growth for housing starts and a 50% reduction to GDP growth. The
resulting revenue increases based on regression modeling were 1.8%, 1.8% and 1.7% in the upcoming three-
year period (2016-2018). Using the same 50% reduction to GDP input as the revenue calculation, operating cost
increases of 1.2%, 1.3% and 1.2% were calculated for use in the bear case. Based on those values,the 3 and 5-
year price targets are as follows:
Bear Case:
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

15. 15
Appendix 7
y = 0.3392x - 655.29
R² = 0.8125
0.0
1000.0
2000.0
3000.0
4000.0
5000.0
6000.0
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
Total COGS vs. U.S. GDP
y = 0.2313x + 119.77
R² = 0.4582
0.0
500.0
1000.0
1500.0
2000.0
2500.0
3000.0
3500.0
4000.0
4500.0
5000.0
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
Total Operating Costs vs. U.S. GDP

16. 16
Appendix 8
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)
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)
SUMMARY OUTPUT TOTAL OC SALES
Regression Statistics
Regression Statistics
Multiple R 0.931470736
R Square 0.867637732
Adjusted R Square 0.855031802
Standard Error 404.2883599
Observations 24
ANOVA
df SS MS F Significance F
Regression 2 22499662.32 11249831.16 68.82774319 6.00515E-10
Residual 21 3432430.637 163449.0779
Total 23 25932092.96
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept -2179.094717 626.4808538 -3.478310157 0.002244208 -3481.932974 -876.2564601 -3481.932974 -876.2564601
Housing Starts 0.87219842 0.196899538 4.429662089 0.000232585 0.462723414 1.281673426 0.462723414 1.281673426
U.S. GDP - AVERAGE 0.454563184 0.039077094 11.63247169 1.28948E-10 0.373297919 0.535828449 0.373297919 0.535828449

17. 17
SUMMARY OUTPUT TOTAL BUILDING MATERIALS Regressio
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
SUMMARY OUTPUT TOTAL COGS
Regression Statistics
Multiple R 0.901412029
R Square 0.812543647
Adjusted R Square 0.804022903
Standard Error 371.532049
Observations 24
ANOVA
df SS MS F Significance F
Regression 1 13163209.11 13163209.11 95.36065272 1.85646E-09
Residual 22 3036793.395 138036.0634
Total 23 16200002.5
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept -655.2887036 452.0208025 -1.44968705 0.161252744 -1592.722472 282.1450649 -1592.722472 282.1450649
U.S. GDP - AVERAGE 0.339219765 0.034737339 9.765277913 1.85646E-09 0.267178934 0.411260596 0.267178934 0.411260596

18. 18
Financial Analysis
Appendix 9
44 48
65
0
20
40
60
80
Days
Days Sales Outstanding - 5 Yr Avg
OC MHK PPG
1.75 2.14
1.71
0
2
4
Current Ratio - 5 Yr Avg
OC MHK PPG

19. 19
0.72
0.87
1.06
0.0
0.5
1.0
1.5
Acid Test Ratio - 5 Yr Avg
OC MHK PPG
0.51 0.46
0.73
0.0
0.5
1.0
Debt Ratio - 5 Yr Avg
OC MHK PPG

20. 20
Disclosures:
Ownership and material conflicts of interest:
The author(s), or a member oftheir household, of this report doesnot holda financialinterest inthe securities of this
company.
The author(s), or a member oftheir household, of this report doesnot knowof the existence ofanyconflicts of interest
that might biasthe content or publication ofthis report.
Receipt of compensation:
Compensation ofthe author(s) of thisreport is not basedon investment banking revenue.
Position as a officer or director:
The author(s), or a member oftheir household, doesnot serve as an officer, director or advisoryboardmember of the
subject company.
Market making:
The author(s) does not act as a market maker inthe subject company’s securities.
Disclaimer:
The informationset forthherein has beenobtainedor derived fromsources generallyavailable to the public andbelieved
bythe author(s)to be reliable, but the author(s) does not make anyrepresentationor warranty, express or implied, as to
its accuracyor completeness. The informationis not intendedto be usedas the basisof anyinvestment decisions byany
person or entity. This informationdoesnot constitute investment advice, nor is it an offer or a solicitationof an offer to
buyor sell anysecurity. This report shouldnot be consideredto be a recommendation byanyindividual affiliated withCFA
of Columbus andCincinnati, CFA Institute or the CFA Institute Research Challenge withregard to thiscompany’s stock.