We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
5 Construction Stocks Set to Beat Estimates in Q3 Earnings
Read MoreHide Full Article
Improvement in manufacturing and infrastructural activities is expected to benefit the Construction sector in the third quarter of 2022, defying various challenges like rising mortgage rates, persistent supply-chain bottlenecks, labor market constraints and inflationary pressure.
Per the latest Earnings Trends report, the Q3 earnings season has so far seen releases from approximately 8% of the construction sector’s market capitalization on the S&P 500 Index. Of them, 100% have been able to surpass earnings estimates but none of them have been able to surpass sales estimates.
Notably, seven of the 16 Zacks sectors are expected to register year-over-year gains. Construction is among those that might have witnessed solid growth rates in the quarter.
Factors Influencing Q3 Results
The sector is expected to have benefited from modest gains in homebuilding investments. Although homeowner spending for home improvements and repairs is expected to soften, growth in spending for home improvements and repairs is expected to remain well above the market’s historical average. Hence, building products suppliers are expected to have benefited from this improvement. Solid demand from non-residential and infrastructural activities for both private and public project work is expected to have supported growth.
Moreover, prudent cost-saving efforts, a disciplined approach in bidding, project management, strength in funding programs across the states, and higher demand for road repair and maintenance are likely to have acted as the tailwind for the companies’ quarterly performance. Also, bolt-on acquisitions are anticipated to have supported their top lines and expanded their geographical reach and product portfolio.
However, the Fed’s hawkish move to combat inflation along with rising home prices are expected to have conspired to limit buying and selling activities in the quarter. Challenges in the housing industry persist in the form of low supply levels, shortage of skilled labor and an upsurge in input prices.
Again, higher raw material costs owing to supply-chain disruptions are likely to have affected the companies’ margins. Higher land, labor and transportation costs may have been dampeners. While inflation may have limited margin upside, companies have been taking pricing actions, which should have helped them offset such headwinds to some extent.
Q3 Expectations
The overall estimate picture is not a bad one for the broader Zacks Construction sector amid challenges associated with supply-chain disruptions, inflation and transportation costs. Per the latest Earnings Trends, construction sector earnings are expected to increase 23.8% for the third quarter. The growth rate is expected to have increased from 21.4% registered in second-quarter 2022. Revenues are projected to increase 17.1%, suggesting a marginal decline from 17.3% growth registered in the prior quarter.
Which Are the Right Picks?
Given the headwinds, it is not easy to find stocks with the potential to trump earnings estimates. Here, the Zacks methodology comes in handy as it helps to identify stocks that not only boast solid fundamentals but are also poised to beat estimates this earnings season.
Our research shows that for stocks with this combination, the chances of delivering an earnings beat are as high as 70%.
Earnings ESP is our proprietary methodology for determining stocks that have the best chances of coming up with an earnings beat in their upcoming earnings announcement. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
Winning Stocks
For investors willing to adopt this strategy, we have highlighted five construction stocks that may stand out this earnings season.
Based in Winchester, VA, Trex Company, Inc. (TREX - Free Report) — which manufactures and distributes decking, railing, and outdoor living products and accessories — topped earnings estimates in all the trailing four quarters, with the average surprise being 10.8%.
TREX is poised to beat expectations when it reports third-quarter 2022 results on Oct 31, after market close. It carries a Zacks Rank #3 and has an Earnings ESP of +25.62%, at present.
Continued investments by customers in enhancing their outdoor living experience are likely to have aided the company’s quarterly performance. Favorable pricing/mix and focus on cost reduction efforts and production efficiencies are added positives.
Headquartered in Stamford, CT, United Rentals, Inc. (URI - Free Report) — largest equipment rental company in the world — topped earnings estimates in three of the trailing four quarters and missed on one occasion, with the average surprise being 8%.
URI is poised to beat expectations when it reports third-quarter 2022 results on Oct 26, after the closing bell. It carries a Zacks Rank #3 and has an Earnings ESP of +1.46%, at present.
Better fleet productivity on broad-based rental demand in non-residential construction and industrial verticals, higher total and rental revenues and stronger pricing bode well for the company’s quarterly performance.
Headquartered in Toledo, OH, Owens Corning (OC - Free Report) — a world leader in building materials systems and composite solutions — topped earnings estimates in all of the trailing four quarters, with the average surprise being 12.2%.
OC is poised to beat expectations when it reports third-quarter 2022 results on Oct 26, before the opening bell. It carries a Zacks Rank #2 and has an Earnings ESP of +4.09%, at present.
Higher demand across the markets served, structural improvements, strategic investments, strong commercial and operational execution and focus on acquisition are expected to reflect in the quarterly performance.
Boise Cascade Company (BCC - Free Report) manufactures wood products and distributes building materials. The company topped earnings estimates in all of the trailing four quarters, with the average surprise being 27.1%.
BCC is poised to beat expectations when it reports third-quarter 2022 results on Nov 1. It carries a Zacks Rank #1 and has an Earnings ESP of +3.29%, at present.
The acquisition of Coastal Plywood Company, the growth of EWP capacity and general line products are expected to reflect in the quarterly performance despite economic uncertainty and expected soft demand for new residential construction.
PulteGroup, Inc. (PHM - Free Report) — an Atlanta, GA-based homebuilder — topped earnings estimates in three of the trailing four quarters and missed on one occasion, with the average surprise being 5.6%.
PHM is poised to beat expectations when it reports third-quarter 2022 results on Oct 25, before the opening bell. It carries a Zacks Rank #3 and has an Earnings ESP of +0.18%, at present.
Solid backlog level, improved gross margin and overhead leverage are expected to have supported growth for the quarter-to-be reported.
Image: Bigstock
5 Construction Stocks Set to Beat Estimates in Q3 Earnings
Improvement in manufacturing and infrastructural activities is expected to benefit the Construction sector in the third quarter of 2022, defying various challenges like rising mortgage rates, persistent supply-chain bottlenecks, labor market constraints and inflationary pressure.
Per the latest Earnings Trends report, the Q3 earnings season has so far seen releases from approximately 8% of the construction sector’s market capitalization on the S&P 500 Index. Of them, 100% have been able to surpass earnings estimates but none of them have been able to surpass sales estimates.
Notably, seven of the 16 Zacks sectors are expected to register year-over-year gains. Construction is among those that might have witnessed solid growth rates in the quarter.
Factors Influencing Q3 Results
The sector is expected to have benefited from modest gains in homebuilding investments. Although homeowner spending for home improvements and repairs is expected to soften, growth in spending for home improvements and repairs is expected to remain well above the market’s historical average. Hence, building products suppliers are expected to have benefited from this improvement. Solid demand from non-residential and infrastructural activities for both private and public project work is expected to have supported growth.
Moreover, prudent cost-saving efforts, a disciplined approach in bidding, project management, strength in funding programs across the states, and higher demand for road repair and maintenance are likely to have acted as the tailwind for the companies’ quarterly performance. Also, bolt-on acquisitions are anticipated to have supported their top lines and expanded their geographical reach and product portfolio.
However, the Fed’s hawkish move to combat inflation along with rising home prices are expected to have conspired to limit buying and selling activities in the quarter. Challenges in the housing industry persist in the form of low supply levels, shortage of skilled labor and an upsurge in input prices.
Again, higher raw material costs owing to supply-chain disruptions are likely to have affected the companies’ margins. Higher land, labor and transportation costs may have been dampeners. While inflation may have limited margin upside, companies have been taking pricing actions, which should have helped them offset such headwinds to some extent.
Q3 Expectations
The overall estimate picture is not a bad one for the broader Zacks Construction sector amid challenges associated with supply-chain disruptions, inflation and transportation costs. Per the latest Earnings Trends, construction sector earnings are expected to increase 23.8% for the third quarter. The growth rate is expected to have increased from 21.4% registered in second-quarter 2022. Revenues are projected to increase 17.1%, suggesting a marginal decline from 17.3% growth registered in the prior quarter.
Which Are the Right Picks?
Given the headwinds, it is not easy to find stocks with the potential to trump earnings estimates. Here, the Zacks methodology comes in handy as it helps to identify stocks that not only boast solid fundamentals but are also poised to beat estimates this earnings season.
One can narrow down the list with the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP. You can uncover the best stocks to buy or sell before they report with our Earnings ESP Filter. You can see the complete list of today’s Zacks #1 Rank stocks here.
Our research shows that for stocks with this combination, the chances of delivering an earnings beat are as high as 70%.
Earnings ESP is our proprietary methodology for determining stocks that have the best chances of coming up with an earnings beat in their upcoming earnings announcement. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
Winning Stocks
For investors willing to adopt this strategy, we have highlighted five construction stocks that may stand out this earnings season.
Based in Winchester, VA, Trex Company, Inc. (TREX - Free Report) — which manufactures and distributes decking, railing, and outdoor living products and accessories — topped earnings estimates in all the trailing four quarters, with the average surprise being 10.8%.
TREX is poised to beat expectations when it reports third-quarter 2022 results on Oct 31, after market close. It carries a Zacks Rank #3 and has an Earnings ESP of +25.62%, at present.
Continued investments by customers in enhancing their outdoor living experience are likely to have aided the company’s quarterly performance. Favorable pricing/mix and focus on cost reduction efforts and production efficiencies are added positives.
Trex Company, Inc. Price and EPS Surprise
Trex Company, Inc. price-eps-surprise | Trex Company, Inc. Quote
Headquartered in Stamford, CT, United Rentals, Inc. (URI - Free Report) — largest equipment rental company in the world — topped earnings estimates in three of the trailing four quarters and missed on one occasion, with the average surprise being 8%.
URI is poised to beat expectations when it reports third-quarter 2022 results on Oct 26, after the closing bell. It carries a Zacks Rank #3 and has an Earnings ESP of +1.46%, at present.
Better fleet productivity on broad-based rental demand in non-residential construction and industrial verticals, higher total and rental revenues and stronger pricing bode well for the company’s quarterly performance.
United Rentals, Inc. Price and EPS Surprise
United Rentals, Inc. price-eps-surprise | United Rentals, Inc. Quote
Headquartered in Toledo, OH, Owens Corning (OC - Free Report) — a world leader in building materials systems and composite solutions — topped earnings estimates in all of the trailing four quarters, with the average surprise being 12.2%.
OC is poised to beat expectations when it reports third-quarter 2022 results on Oct 26, before the opening bell. It carries a Zacks Rank #2 and has an Earnings ESP of +4.09%, at present.
Higher demand across the markets served, structural improvements, strategic investments, strong commercial and operational execution and focus on acquisition are expected to reflect in the quarterly performance.
Owens Corning Inc Price and EPS Surprise
Owens Corning Inc price-eps-surprise | Owens Corning Inc Quote
Boise Cascade Company (BCC - Free Report) manufactures wood products and distributes building materials. The company topped earnings estimates in all of the trailing four quarters, with the average surprise being 27.1%.
BCC is poised to beat expectations when it reports third-quarter 2022 results on Nov 1. It carries a Zacks Rank #1 and has an Earnings ESP of +3.29%, at present.
The acquisition of Coastal Plywood Company, the growth of EWP capacity and general line products are expected to reflect in the quarterly performance despite economic uncertainty and expected soft demand for new residential construction.
Boise Cascade, L.L.C. Price and EPS Surprise
Boise Cascade, L.L.C. price-eps-surprise | Boise Cascade, L.L.C. Quote
PulteGroup, Inc. (PHM - Free Report) — an Atlanta, GA-based homebuilder — topped earnings estimates in three of the trailing four quarters and missed on one occasion, with the average surprise being 5.6%.
PHM is poised to beat expectations when it reports third-quarter 2022 results on Oct 25, before the opening bell. It carries a Zacks Rank #3 and has an Earnings ESP of +0.18%, at present.
Solid backlog level, improved gross margin and overhead leverage are expected to have supported growth for the quarter-to-be reported.
PulteGroup, Inc. Price and EPS Surprise
PulteGroup, Inc. price-eps-surprise | PulteGroup, Inc. Quote