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5 Construction Stocks to Beat Q3 Earnings Estimates

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The construction sector is expected to have benefited in the third quarter, given a solid residential backdrop, and an improvement in manufacturing and infrastructural activities. Yet, persistent supply woes, inflationary pressure and higher freight costs are likely to reflect on the construction sector’s Q3 results.

The Q3 earnings season has so far seen releases from approximately 7.1% of construction companies. While 100% of them posted an earnings beat, none of them surpassed revenue estimates.

Factors Likely to Influence Q3 Results

The sector is expected to have benefited from robust gains from homebuilding investments. Although challenges in the housing industry persist in the form of low supply levels, adverse impact of the COVID-19 pandemic, shortage of skilled labor and a huge upsurge in input prices, factors like low mortgage rates and the desire to own a home amid the pandemic-induced work-home-home trend worked in its favor. The sector is also gaining from higher demand stemming from accelerated repair and remodel activity.

Apart from positive residential momentum, solid demand from non-residential and infrastructural activities for both private and public project work is expected to have supported growth. In addition, 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 major tailwinds for the companies’ quarterly performance. Also, bolt-on acquisitions are anticipated to have expanded their geographical reach and product portfolio.

However, wet weather conditions in Texas and Idaho along with higher raw material costs owing to supply chain disruptions are likely to have affected the companies’ margins. Additionally, higher land, labor and transportation costs may have been risks. While inflation could limit 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 Outlook, construction sector earnings are expected to increase 17.4% for the third quarter, indicating a decrease from 66% registered in second-quarter 2021. Revenues are projected to increase 13.5%, suggesting a decline from 24.2% growth registered in the prior quarter.

Notable Q3 Releases So Far

Industry biggies like Lennar Corporation (LEN - Free Report) and Fastenal Company (FAST - Free Report) reported their respective quarterly results. Lennar’s third-quarter fiscal 2021 (ended Aug 31, 2021) earnings topped the Zacks Consensus Estimate but revenues missed the same, thanks to unprecedented supply chain challenges. Meanwhile, Fastenal’s third-quarter 2021 earnings and revenues beat the Zacks Consensus Estimate.

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 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.

Our research shows that for stocks with this combination, the chances of delivering 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.

Boise ID-based Boise Cascade Company (BCC - Free Report) — which makes wood products, and distributes building materials in the United States as well as Canada — topped earnings estimates in all the trailing four quarters, with the average being 61.6%.

Boise Cascade is likely to beat expectations when it reports third-quarter 2021 results on Nov 2, before market open. This Zacks Rank #3 company has an Earnings ESP of +7.33%. Higher commodity wood products pricing and robust construction activity continue to aid the company to deliver strong results. Building Materials Distribution and Wood Products segments are gaining strength from strong end-product demand (particularly for EWP) as well as higher commodity product prices.

Boise Cascade, L.L.C. Price and EPS Surprise

Boise Cascade, L.L.C. Price and EPS Surprise

Boise Cascade, L.L.C. price-eps-surprise | Boise Cascade, L.L.C. Quote

Comfort Systems USA, Inc. (FIX - Free Report) — a national provider of comprehensive heating, ventilation, and air conditioning installation along with maintenance, repair, and replacement services based in Houston, TX — beat earnings estimates in three of the last four quarters and missed in one, with the average being 14.7%.

Comfort Systems is poised to beat expectations when it reports third-quarter 2021 results. It carries a Zacks Rank #3 and has an Earnings ESP of +6.34%, at present. Although there have been revenue headwinds due to delays in projects, strong activity levels and higher investments in productivity made earlier are expected to aid the company’s quarterly results. Overall positive trends — primarily in industrial, construction, institutional, and manufacturing markets served by the company — as well as accretive buyouts are encouraging.
 

Comfort Systems USA, Inc. Price and EPS Surprise

Comfort Systems USA, Inc. Price and EPS Surprise

Comfort Systems USA, Inc. price-eps-surprise | Comfort Systems USA, Inc. Quote

Jacobs Engineering Group Inc. (J - Free Report) — one of the leading providers of professional, technical, and construction services to industrial, commercial and governmental clients — beat earnings estimates in all the last four quarters, with the average being 17.5%.

Jacobs is poised to beat expectations when it reports fourth-quarter fiscal 2021 results. It carries a Zacks Rank #2 and has an Earnings ESP of +6.49%, at present. Strong global trends in infrastructure modernization, energy transition, and national security are expected to have benefited the company in the to-be-reported quarter.

KBR, Inc. (KBR - Free Report) — a global engineering, construction and services firm — topped earnings estimates in all the trailing four quarters, with the average being 8.5%.

The company is likely to beat expectations when it reports third-quarter 2021 results on Oct 28, before market open. Currently, the company carries a Zacks Rank #2 and has an Earnings ESP of +2.66%. Solid Government Solutions organic growth, strong execution across the business and the acquisition of Centauri are likely to have supported growth.

KBR, Inc. Price and EPS Surprise

KBR, Inc. Price and EPS Surprise

KBR, Inc. price-eps-surprise | KBR, Inc. Quote

Summit Materials, Inc. (SUM - Free Report) — which produces and sells construction materials as well as related downstream products — topped earnings estimates in two of the trailing four quarters and missed the same on the other two occasions, with the average surprise being 10%.

It is poised to beat expectations when it reports third-quarter 2021 results on Nov 3, after the closing bell. Currently, the company carries a Zacks Rank #3 and has an Earnings ESP of +1.43%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Similar to other aggregates and cement producers, Summit is expected to have witnessed weather-related woes in the third quarter, primarily in Texas and Idaho. Also, supply chain disruptions, and inflation from hydrocarbon, insurance and labor are likely to have added to the negatives. That said, higher demand arising from strengthening of the housing market is encouraging. Also, the non-residential market has been seeing improvements.

Summit Materials, Inc. Price and EPS Surprise

Summit Materials, Inc. Price and EPS Surprise

Summit Materials, Inc. price-eps-surprise | Summit Materials, Inc. Quote