The Zacks Construction sector is all set to report better results this time, thanks to the improving housing market scenario and the Fed’s decision to pause interest rate hikes. Outlays on new single-family construction projects have been neutralizing the dearth of non-residential infrastructure projects over the past few months.

Factors Shaping Quarterly Performance

The distinct trends across residential and non-residential markets are likely to shape the Zacks Construction sector's performance in the first quarter of 2024.

However, the housing industry is struggling with rising mortgage rates that are deterring potential buyers. Since the beginning of 2024, mortgage rates have relentlessly held between 6.6% and 7%. This apart, weather-related impacts and elevated labor costs may hamper overall performance. Nonetheless, limited availability of existing homes, encouraging repair and remodeling activities, and cost management efforts are likely to have contributed to growth.

Conversely, for the non-residential industry players, strong global trends in infrastructure modernization, energy transition, national security, and potential supply-chain investments bolster quarterly results. Additionally, investments in telecommunications networks, especially in 5G technologies, environmental remediation and climate resilience further support performance. However, weather-related challenges, fluctuations in capital spending and commodity price fluctuations are major concerns.

With the help of the Zacks Stock Screener, we have identified five construction stocks, namely United Rentals, Inc. (URI Quick QuoteURI - Free Report) , KBR, Inc. (KBR Quick QuoteKBR - Free Report) , Boise Cascade Company (BCC Quick QuoteBCC - Free Report) , Louisiana-Pacific Corporation (LPX Quick QuoteLPX - Free Report) and Dream Finders Homes, Inc. (DFH Quick QuoteDFH - Free Report) , which are poised to beat the Zacks Consensus Estimate this earnings season.

Q1 Expectations

The overall estimate picture is a mixed one for the broader Zacks Construction sector. Per the latest Earnings Trends report, construction sector earnings are expected to rise 3.8% for the first quarter. This indicates growth from the fourth quarter of 2023 improvement rate of 2.6%. Revenues are projected to increase 4.2%, suggesting a deceleration from 5.1% growth registered in the prior quarter.

Which Are the Right Picks?

Given the mixed thoughts, 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.

United Rentals — the 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 being 3.1%.

URI is likely to beat expectations when it reports first-quarter 2024 results on Apr 24, after market close. This Zacks Rank #2 company has an Earnings ESP of +2.71%.

The Zacks Consensus Estimate for its first-quarter EPS is pegged at $8.35, representing a rise of 5% from the year-ago reported figure. Improved activity levels, backed by stronger demand in each of the end markets served in North America, and solid mega-project activity are expected to have aided United Rentals’ quarterly results. (Read more: Things to Consider Before United Rentals' Q1 Earnings)

KBR, a global engineering, construction and services firm, topped earnings estimates in the trailing four quarters, with the average being 6.4%.

KBR is likely to beat expectations when it reports first-quarter 2024 results on Apr 30, before market open. This Zacks Rank #3 company has an Earnings ESP of +5.50%.

The Zacks Consensus Estimate for its first-quarter EPS is pegged at 70 cents, representing an increase of 4.5% from the year-ago reported figure. New and on-contract growth across Defense & Intel, Science & Space, and International within the Government Solutions unit and growing demand for the Sustainable Technology Solutions business is likely to have aided KBR’s results.

Boise Cascade Company — one of the largest wood products manufacturers and a leading United States wholesale distributor of building products — topped earnings estimates in three of the trailing four quarters and missed on one occasion, with the average being 20.4%.

BCC is likely to beat expectations when it reports first-quarter 2024 results. This Zacks Rank #3 company has an Earnings ESP of +0.22%.

The Zacks Consensus Estimate for its first-quarter EPS is pegged at $2.29, representing a decline of 5.8% from the year-ago reported figure. It is benefiting from its vertically integrated business model, enabling the Wood Products and BMD segments to benefit through a committed distributor and manufacturer partnership.

Louisiana-Pacific Corporation or LP, a leading manufacturer of sustainable, quality engineered wood building materials, structural framing products as well as exterior siding, topped earnings estimates in three of the trailing four quarters and missed on one occasion, with the average being 106.2%.

LPX is likely to beat expectations when it reports first-quarter 2024 results on May 8, before market open. This Zacks Rank #1 company has an Earnings ESP of +3.56%.

The Zacks Consensus Estimate for its first-quarter EPS is pegged at $1.13, representing growth of 232.4% from the year-ago reported figure. Strategic business investments and cost-reduction initiatives, along with the improving housing market trends, are expected to have benefited LPX in the first quarter.

Dream Finders Homes, a Florida-based homebuilding company, topped earnings estimates in the trailing four quarters, with the average being 144.9%.

DFH is likely to beat expectations when it reports first-quarter 2024 results. This Zacks Rank #1 company has an Earnings ESP of +7.14%.

The Zacks Consensus Estimate for its first-quarter EPS is pegged at 70 cents, representing an increase of 55.6% from the year-ago reported figure. The company has been experiencing strong demand for its products.