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Bull of the Day: Construction Partners (ROAD)

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Construction Partners (ROAD - Free Report) , a Zacks Rank #1 (Strong Buy), is engaged in the construction of roadways across several southern U.S. states. ROAD shares are widely outperforming the market over the past six months with the backing of a leading industry group. The stock is hitting a series of 52-week highs and displaying relative strength as buying pressure accumulates in this top-ranked stock.

ROAD stock is part of the Zacks Building Products – Miscellaneous industry group, which ranks in the top 11% out of more than 250 Zacks Ranked Industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months, just as it has over the course of the year:

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Image Source: Zacks Investment Research

Also note the favorable characteristics for this group below:

Zacks Investment Research
Image Source: Zacks Investment Research

Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.

Company Description

Construction Partners, a civil infrastructure company, builds and maintains roadways across Alabama, Florida, Georgia, North Carolina, and South Carolina. The company provides various products and services to public and private infrastructure projects with a focus on highways, roads, bridges, airports, and commercial and residential developments.

ROAD also engages in manufacturing and distribution of hot mix asphalt, paving activities, and site development, the latter of which includes the installation of utility and drainage systems. Formerly known as SunTx CPI Growth Company, Construction Partners was incorporated in 1999 and is headquartered in Dothan, Alabama.

Earnings Trends and Future Estimates

The construction company has put together an impressive earnings history, surpassing earnings estimates in three of the last four quarters. Back in August, the company reported fiscal third-quarter earnings of $0.41/share, a 28.13% surprise over the $0.32/share consensus estimate. Construction Partners has delivered a trailing four-quarter average earnings surprise of 10.6%.

ROAD shares have received a boost as analysts covering the company have been increasing their Q4 earnings estimates lately. For the fiscal fourth quarter, earnings estimates have risen 6.12% in the past 60 days. The Q4 Zacks Consensus EPS Estimate now stands at $0.52/share, reflecting a staggering potential growth rate of 108% relative to the year-ago period.

Zacks Investment Research
Image Source: Zacks Investment Research

Let’s Get Technical

ROAD shares have advanced more than 50% in the past 6 months. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.

StockCharts
Image Source: StockCharts

Notice how both the 50-day (blue line) and 200-day (red line) moving averages are sloping up. The stock has been making a series of 52-week highs, widely outperforming the major indices. With both strong fundamentals and technicals, ROAD stock is poised to continue its outperformance.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Construction Partners has recently witnessed positive revisions. As long as this trend remains intact (and ROAD continues to deliver earnings beats), the stock will likely continue its bullish run into the end of this year and beyond.

Bottom Line

Construction Partners is ranked favorably by our Zacks Style Scores, with a top mark in our Growth category. This indicates that further upside is likely based on favorable earnings and sales metrics.

Backed by a top industry group and impressive history of earnings beats, it’s not difficult to see why this company is a compelling investment. Robust fundamentals combined with an appealing technical trend certainly justify adding shares to the mix. The future looks bright for this highly-ranked, leading stock.


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