rchelap

Owens Corning: Think Pink to Stuff Your Wallet With Green

Todd,

Lot of the points you made are valid and the undervaluation thesis on OC holds when you drill down. However, some of the facts you put out are off if you study the disclosure statement that was published during the bankruptcy proceedings.

The expected normalized net income is approx. $300MM+ in 2007 and 2008 each as opposed to the $600MM figure you mentioned. Also, the expected net debt (after the Jan 07 contingent payment to the Asbestos Trust ) in Dec 07 is 1.279B and in Dec 08 it is expected to be 722MM, based on projections by management. These are figures assuming no repayment of debt from the Exit financing and consequent interest expenses baked into the expected income numbers. The shs outstanding would be approx. 131.4 MM.

Therefore, the $4.61 EPS and the net cash of $12 you mentioned are both not accurate, in my opinion.

I would add that a few of the factors (based on mgmt estimates and projections disclosed in the Disclosure Statement) likely supporting the current OC undervaluation thesis are:
-An expected normalized Free Cash Flow figure in the range of $350 to $500 in 2007/2008 and beyond, under stable housing market conditions
-OC also has approx. $670MM in PV of the NOLs from the past that can be used to offset taxes. This is part of the current market cap of approx. $3.8B. Therefore, if the market cap remians the same, we are looking at an EV of 5.1B (3.8Mkt cap + 1.3 in net debt)
-Solid management incentives in place to drive shareholder value
-Operating margins approaching 8-10% going forward, again, under stable housing market conditions
-Investment Grade balance sheet with the Asbestos issues behind them

Regards,
RC