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Is Surprise in the Cards for Materials ETFs in Q2 Earnings?

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Although uncertainty in Trump’s proposed infrastructure plan is weighing on bullish sentiments on the materials sector, it has managed to come up with a remarkable performance this year. This is especially true as rebounding commodity prices, positive developments in China, pick-up in global manufacturing activities and improving global trends are acting as catalysts to the sector.

As a result, Materials Select Sector SPDR (XLB - Free Report) , Vanguard Materials ETF (VAW - Free Report) , iShares U.S. Basic Materials ETF (IYM - Free Report) , and Fidelity MSCI Materials Index ETF (FMAT - Free Report) have gained about 13% so far this year. Will this trend continue as the Q2 earnings season unfolds?

Let’s delve into the earnings picture of some of the largest companies in the materials space that would drive the performance of these funds in the coming weeks as these dominate their portfolio. These include Dow Chemical (DOW - Free Report) , DuPont (DD - Free Report) , Praxair (PX - Free Report) , Air Products & Chemicals (APD - Free Report) and LyondellBasell Industries (LYB - Free Report) . These stocks collectively account for 39.8% share in IYM, 39.5% in XLB, 29.1% in FMAT and 29% in VAW (read: 3 ETFs Loaded with Positive ESP Stocks).

According to the our methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP increases our chances of predicting an earnings beat, while a Zacks Rank #4 or 5 (Sell rated) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Inside Our Surprise Prediction of These Stocks

Dow Chemical has a Zacks Rank #4 and an Earnings ESP of -1.98%. The company has seen negative earnings estimate revision of eight cents over the past 90 days for the to-be-reported quarter but delivered a positive earnings surprise of 10.77% on average over the last four quarters. Additionally, the stock has an unimpressive VGM Style Score of D. Dow Chemical is scheduled to report earnings on July 27 before the opening bell.

Dow Chemical Company (The) Price, Consensus and EPS Surprise

Dow Chemical Company (The) Price, Consensus and EPS Surprise | Dow Chemical Company (The) Quote

DuPont is expected to report its results on July 25 before market open. It has a Zacks Rank #1 and an Earnings ESP of 0.00%, which makes surprise prediction difficult. The company has seen negative earnings estimate revision of couple of cents for the to-be-reported quarter over the past 90 days and has a dismal VGM Style Score of F. However, it delivered positive earnings surprises in the last four quarters, with an average beat of 28.73% (see: all the Materials ETFs here).

Praxair has a Zacks Rank #4 and an Earnings ESP of 0.00%. The earnings surprise track over the past four quarters is good with an average positive surprise of 1.67%. Additionally, the stock has a solid VGM Style Score of B. However, the stock witnessed negative earnings estimate revision of three cents over the past 90 days for the to-be-reported quarter. Praxair will report earnings on July 27 before the market opens.

Praxair, Inc. Price, Consensus and EPS Surprise

Praxair, Inc. Price, Consensus and EPS Surprise | Praxair, Inc. Quote

Air Products & Chemicals has a Zacks Rank #3 and an Earnings ESP of 0.00%, which makes surprise prediction difficult. The company delivered positive earnings surprises in the last four quarters, with an average beat of 1.12%. However, the company has seen negative earnings estimate revision of a nickel over the past three months for the to-be-reported quarter and has a VGM Style Score of D. The company is schedule to report on August 1 before market open.

LyondellBasell is expected to release earnings on July 28 before the opening bell. It has a Zacks Rank #3 and an Earnings ESP of -6.59%, indicating a lower chance of beating estimates. It has seem negative earnings estimate revision of six cents over the past three months for the to-be-reported quarter and delivered negative earnings surprise of 0.70% in the last four quarters. However, the stock has a solid VGM Style Score of A.

LyondellBasell Industries NV Price, Consensus and EPS Surprise

LyondellBasell Industries NV Price, Consensus and EPS Surprise | LyondellBasell Industries NV Quote

Summing Up

As the major players seem to have less chances of beating earnings estimates, the sector is expected to post modest 1.6% earnings growth on 3.2% revenue growth as per the latest Earnings Trends. Additionally, the sector has a solid Zacks Rank in the top 14%, suggesting some outperformance. Further, the above-mentioned ETFs have a favorable Zacks Rank #3 (read: 4 Top Sector ETFs & Stocks to Cool Off This Summer).

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