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4 Top Stocks to Buy From the Promising Building Products Industry
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Higher government spending for infrastructural enhancement has been aiding the companies under the Zacks Building Products - Miscellaneous industry. Although the current U.S. housing market slowdown, continued supply-chain bottlenecks, investments in new products and higher raw material costs may keep margins under pressure, companies like United Rentals, Inc. (URI - Free Report) , Advanced Drainage Systems, Inc. (WMS - Free Report) , Armstrong World Industries, Inc. (AWI - Free Report) and Arcosa, Inc. (ACA - Free Report) are set to benefit from operational excellence, geographic and product diversification strategies, accretive buyouts and higher infrastructural spending.
Industry Description
The Zacks Building Products - Miscellaneous industry primarily comprises manufacturers, designers and distributors of home improvement and building products like ceiling systems, doors, and windows as well as flooring and metal products. Some industry players provide solutions to rehabilitate the aging infrastructure, primarily pipelines in wastewater, water, energy, mining and refining industries. The companies also manufacture expansion joints and structural bearings, ventilation products, ground-mounted solar racking and commercial greenhouses as well as mail storage (solutions including mailboxes along with package delivery products). Companies in this industrial cohort also rent out equipment to a diverse customer base that includes construction and industrial companies, manufacturers, utilities, municipalities, homeowners as well as government entities.
3 Trends Shaping the Future of the Building Products Industry
U.S. Administration’s Infrastructural Spending: The industry players are expected to benefit from strong global trends in infrastructure modernization, energy transition, national security, and a potential super-cycle in global supply-chain investments. The U.S. administration’s endeavor to rebuild the nation’s deteriorating roads and bridges and fund new climate-resilient and broadband initiatives is expected to aid the companies.
Operational Excellence, Product Innovation & Acquisitions: The industry participants have been carrying out strong cost-saving initiatives like business consolidation, system implementations, plant/branch closures, improvement in the global supply chain and headcount reductions to boost profitability. Industry participants have also been strategically investing in new products, sales and support services, digitally enabled solutions as well as advanced manufacturing capabilities to boost revenues. The companies are also following a systematic acquisition strategy to supplement organic growth, and expand access to additional markets as well as products.
Supply Chain & Inflationary Woes: Inflationary headwinds with respect to transportation costs, material costs and energy costs owing to supply-chain disruptions have been a pressing concern. Also, rising labor costs are compressing margins. These are dampening the companies’ operating performance. Rising costs related to steel, asphalt, resin and other input materials are compressing margins. Although the companies have been working to recover higher costs through various price increases, they expect this ongoing volatility in material and transportation costs to persist in the near term. Meanwhile, the companies have been witnessing short-term project delays due to material and labor shortages that are impacting upstream building activity. This may result in a lower backlog in the near term.
Apart from higher raw material costs, the companies bear expenses related to product launches. If companies are unable to offset these costs through price increases or supply chain initiatives, their profits may be affected.
Also, as the industry players’ business prospects are highly correlated with U.S. housing market conditions and repair and remodeling activity, the current slowdown in the market may prove detrimental.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Building Products – Miscellaneous industry is a 27-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #65, which places it in the top 26% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since August 2022, the industry’s earnings estimates for 2022 and 2023 have been revised 3.6% and 4.5% upward to $3.73 per share and $3.96 per share, respectively.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags S&P 500 & Sector
The Zacks Building Products – Miscellaneous industry has underperformed the Zacks S&P 500 composite and the broader Zacks Construction sector over the past year.
Over this period, the industry has lost 27.1% compared with the S&P 500’s decline of 21.8% and the broader sector’s 24.9% decrease.
One-Year Price Performance
Industry's Current Valuation
The Zacks Building Products – Miscellaneous industry has underperformed the Zacks S&P 500 composite and the broader Zacks Construction sector over the past year.
Over this period, the industry has lost 27.1% compared with the S&P 500’s decline of 21.8% and the broader sector’s 24.9% decrease.
Arcosa: This Dallas, TX-based company provides infrastructure-related products and solutions. The company remains focused on its long-term vision to lessen the complexity of Arcosa’s overall portfolio and shift its business mix toward less cyclical, higher-margin growth opportunities that leverage core strengths and drive long-term shareholder value creation. Recently, it has completed the previously announced sale of its storage tanks business and aims to invest the proceeds into its key growth businesses as well as to repay outstanding borrowings under its revolving credit facility. Also, ACA’s inorganic drive to expand its portfolio, improved efficiencies in utility structures business, coupled with solid execution in cyclical businesses, should drive growth.
Arcosa, a Zacks Rank #1 stock, has gained 13.2% over the past year. ACA has seen an upward estimate revision of 11.1% and 3.9% for 2022 and 2023 earnings over the past 60 days to $2.31 per share and $2.64 per share, respectively.
Price and Consensus: ACA
United Rentals: Headquartered in Stamford, CT, United Rentals is the largest equipment rental company in the world. This company has been gaining from better fleet productivity on broad-based rental demand in construction and industrial verticals. It remains optimistic for 2022 and 2023 courtesy of positive customer sentiments and used equipment demand as well as consistent share growth opportunities in certain non-residential verticals, including power, healthcare, distribution and technology.
URI, a Zacks Rank #2 stock, has dropped 18.6% over the past year. That said, URI has seen an upward estimate revision of 0.5% for 2022 earnings and 0.4% for 2023 earnings over the past seven days to $31.89 per share and $35.31 per share. The company’s earnings for 2022 and 2023 are expected to increase 44.6% and 10.7%, respectively.
Price and Consensus: URI
Armstrong World Industries: Headquartered in Lancaster, PA, Armstrong World is a leading global producer of ceiling systems for use primarily in the construction and renovation of commercial, institutional and residential buildings. The company has been benefiting from an increased focus on new products and a systematic inorganic strategy to enhance its portfolio. Benefits from the acquisitions of Turf, Moz and Arktura have been aiding the company. Moreover, the company has also been focused on digitalization initiatives and enhancement of new technology.
AWI, a Zacks Rank #2 stock, has dropped 17.3% over the past year. That said, AWI has seen an upward estimate revision of 0.4% for 2022 earnings and 2.8% for 2023 earnings over the past 60 days to $5.15 per share and $5.82 per share. The company’s earnings for 2022 and 2023 are expected to increase 18.1% and 12.9%, respectively.
Price and Consensus: AWI
Advanced Drainage Systems: Headquartered in Hilliard, OH, this company provides innovative water management solutions in stormwater and on-site septic wastewater industries. Despite a challenging operating environment, the company has been gaining from strong volume growth in Allied Products, Infiltrator and the residential end market. The material conversion strategy, complete water management solutions and focus on key sales programs have been driving growth. It has been experiencing higher demand in non-residential, infrastructure and agriculture end markets.
WMS, also a Zacks Rank #2 stock, has climbed 13.4% over the past year. WMS has seen an upward estimate revision of 2.2% and 2.6% for fiscal 2023 and 2024 earnings over the past 60 days to $6.39 per share and $7.01 per share, respectively.
Price and Consensus: WMS
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4 Top Stocks to Buy From the Promising Building Products Industry
Higher government spending for infrastructural enhancement has been aiding the companies under the Zacks Building Products - Miscellaneous industry. Although the current U.S. housing market slowdown, continued supply-chain bottlenecks, investments in new products and higher raw material costs may keep margins under pressure, companies like United Rentals, Inc. (URI - Free Report) , Advanced Drainage Systems, Inc. (WMS - Free Report) , Armstrong World Industries, Inc. (AWI - Free Report) and Arcosa, Inc. (ACA - Free Report) are set to benefit from operational excellence, geographic and product diversification strategies, accretive buyouts and higher infrastructural spending.
Industry Description
The Zacks Building Products - Miscellaneous industry primarily comprises manufacturers, designers and distributors of home improvement and building products like ceiling systems, doors, and windows as well as flooring and metal products. Some industry players provide solutions to rehabilitate the aging infrastructure, primarily pipelines in wastewater, water, energy, mining and refining industries. The companies also manufacture expansion joints and structural bearings, ventilation products, ground-mounted solar racking and commercial greenhouses as well as mail storage (solutions including mailboxes along with package delivery products). Companies in this industrial cohort also rent out equipment to a diverse customer base that includes construction and industrial companies, manufacturers, utilities, municipalities, homeowners as well as government entities.
3 Trends Shaping the Future of the Building Products Industry
U.S. Administration’s Infrastructural Spending: The industry players are expected to benefit from strong global trends in infrastructure modernization, energy transition, national security, and a potential super-cycle in global supply-chain investments. The U.S. administration’s endeavor to rebuild the nation’s deteriorating roads and bridges and fund new climate-resilient and broadband initiatives is expected to aid the companies.
Operational Excellence, Product Innovation & Acquisitions: The industry participants have been carrying out strong cost-saving initiatives like business consolidation, system implementations, plant/branch closures, improvement in the global supply chain and headcount reductions to boost profitability. Industry participants have also been strategically investing in new products, sales and support services, digitally enabled solutions as well as advanced manufacturing capabilities to boost revenues. The companies are also following a systematic acquisition strategy to supplement organic growth, and expand access to additional markets as well as products.
Supply Chain & Inflationary Woes: Inflationary headwinds with respect to transportation costs, material costs and energy costs owing to supply-chain disruptions have been a pressing concern. Also, rising labor costs are compressing margins. These are dampening the companies’ operating performance. Rising costs related to steel, asphalt, resin and other input materials are compressing margins. Although the companies have been working to recover higher costs through various price increases, they expect this ongoing volatility in material and transportation costs to persist in the near term. Meanwhile, the companies have been witnessing short-term project delays due to material and labor shortages that are impacting upstream building activity. This may result in a lower backlog in the near term.
Apart from higher raw material costs, the companies bear expenses related to product launches. If companies are unable to offset these costs through price increases or supply chain initiatives, their profits may be affected.
Also, as the industry players’ business prospects are highly correlated with U.S. housing market conditions and repair and remodeling activity, the current slowdown in the market may prove detrimental.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Building Products – Miscellaneous industry is a 27-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #65, which places it in the top 26% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since August 2022, the industry’s earnings estimates for 2022 and 2023 have been revised 3.6% and 4.5% upward to $3.73 per share and $3.96 per share, respectively.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags S&P 500 & Sector
The Zacks Building Products – Miscellaneous industry has underperformed the Zacks S&P 500 composite and the broader Zacks Construction sector over the past year.
Over this period, the industry has lost 27.1% compared with the S&P 500’s decline of 21.8% and the broader sector’s 24.9% decrease.
One-Year Price Performance
Industry's Current Valuation
The Zacks Building Products – Miscellaneous industry has underperformed the Zacks S&P 500 composite and the broader Zacks Construction sector over the past year.
Over this period, the industry has lost 27.1% compared with the S&P 500’s decline of 21.8% and the broader sector’s 24.9% decrease.
One-Year Price Performance
4 Building Product Stocks to Buy Now
We have selected four stocks from the Zacks universe of building products that currently carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Arcosa: This Dallas, TX-based company provides infrastructure-related products and solutions. The company remains focused on its long-term vision to lessen the complexity of Arcosa’s overall portfolio and shift its business mix toward less cyclical, higher-margin growth opportunities that leverage core strengths and drive long-term shareholder value creation. Recently, it has completed the previously announced sale of its storage tanks business and aims to invest the proceeds into its key growth businesses as well as to repay outstanding borrowings under its revolving credit facility. Also, ACA’s inorganic drive to expand its portfolio, improved efficiencies in utility structures business, coupled with solid execution in cyclical businesses, should drive growth.
Arcosa, a Zacks Rank #1 stock, has gained 13.2% over the past year. ACA has seen an upward estimate revision of 11.1% and 3.9% for 2022 and 2023 earnings over the past 60 days to $2.31 per share and $2.64 per share, respectively.
Price and Consensus: ACA
United Rentals: Headquartered in Stamford, CT, United Rentals is the largest equipment rental company in the world. This company has been gaining from better fleet productivity on broad-based rental demand in construction and industrial verticals. It remains optimistic for 2022 and 2023 courtesy of positive customer sentiments and used equipment demand as well as consistent share growth opportunities in certain non-residential verticals, including power, healthcare, distribution and technology.
URI, a Zacks Rank #2 stock, has dropped 18.6% over the past year. That said, URI has seen an upward estimate revision of 0.5% for 2022 earnings and 0.4% for 2023 earnings over the past seven days to $31.89 per share and $35.31 per share. The company’s earnings for 2022 and 2023 are expected to increase 44.6% and 10.7%, respectively.
Price and Consensus: URI
Armstrong World Industries: Headquartered in Lancaster, PA, Armstrong World is a leading global producer of ceiling systems for use primarily in the construction and renovation of commercial, institutional and residential buildings. The company has been benefiting from an increased focus on new products and a systematic inorganic strategy to enhance its portfolio. Benefits from the acquisitions of Turf, Moz and Arktura have been aiding the company. Moreover, the company has also been focused on digitalization initiatives and enhancement of new technology.
AWI, a Zacks Rank #2 stock, has dropped 17.3% over the past year. That said, AWI has seen an upward estimate revision of 0.4% for 2022 earnings and 2.8% for 2023 earnings over the past 60 days to $5.15 per share and $5.82 per share. The company’s earnings for 2022 and 2023 are expected to increase 18.1% and 12.9%, respectively.
Price and Consensus: AWI
Advanced Drainage Systems: Headquartered in Hilliard, OH, this company provides innovative water management solutions in stormwater and on-site septic wastewater industries. Despite a challenging operating environment, the company has been gaining from strong volume growth in Allied Products, Infiltrator and the residential end market. The material conversion strategy, complete water management solutions and focus on key sales programs have been driving growth. It has been experiencing higher demand in non-residential, infrastructure and agriculture end markets.
WMS, also a Zacks Rank #2 stock, has climbed 13.4% over the past year. WMS has seen an upward estimate revision of 2.2% and 2.6% for fiscal 2023 and 2024 earnings over the past 60 days to $6.39 per share and $7.01 per share, respectively.
Price and Consensus: WMS