The Zacks Construction sector is expected to witness tepid growth this season thanks to the elevated mortgage rates as well as high material and labor costs.

Per the latest Earnings Trends report, the latest earnings season has seen releases from approximately 46.2% of the total construction companies on the S&P 500 Index, capturing a total market cap of 55.4%. Of them, total earnings increased 7% from the year-ago period on 4.5% higher revenues, with 83.3% beating earnings per share (EPS) estimates and 50% beating revenue estimates.

For this season, the sector is expected to witness an earnings growth rate of 5.8%. This indicates a reduction from the first-quarter improvement rate of 12.6%. Revenues are projected to increase 4.5%, suggesting a deceleration from 7% growth registered in the prior quarter. Meanwhile, margins are anticipated to increase 0.2% compared with the first-quarter margin acceleration of 0.6%.

Factors Shaping the Trend

The upcoming quarter for the Zacks Construction sector will be shaped by distinct trends in the residential and non-residential markets. The sector is seeing benefits from a robust infrastructure initiative driven by the U.S. government and a shortage of existing homes for sale, which is boosting single-family residential construction.

In the non-residential market, growth is supported by global trends in infrastructure modernization, energy transition, national security, and supply-chain investments. Additional contributions come from investments in telecommunications, especially 5G technology, and initiatives for environmental remediation and climate resilience. However, the sector faces concerns regarding fluctuations in capital spending and commodity price volatility.

The residential market, particularly the multi-family segment, faces challenges due to higher mortgage rates, affordability issues, and labor shortages, which are deterring potential buyers. Despite initial indications from Federal Reserve officials about possible rate cuts, the current approach is more cautious, focusing on inflation levels. Additionally, a decline in repair and remodeling activities is anticipated to impact results negatively.

Utilizing the Zacks Stock Screener, we've singled out five stocks within the construction sector that are scheduled to release their respective quarterly results on Jul 30. These include Armstrong World Industries, Inc. (AWI Quick QuoteAWI - Free Report) , Eagle Materials Inc. (EXP Quick QuoteEXP - Free Report) , UFP Industries, Inc. (UFPI Quick QuoteUFPI - Free Report) , M/I Homes, Inc. (MHO Quick QuoteMHO - Free Report) and Watsco, Inc. (WSO Quick QuoteWSO - Free Report) .

Construction Stocks to Watch

Let’s take a quick glance at how these stocks are poised ahead of their respective earnings release.

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.

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.

Armstrong World —a leading global producer of ceiling systems in Pennsylvania — topped earnings estimates in the trailing four quarters, with the average being 15.2%.

AWI is slated to report second-quarter results before the opening bell. The chances of AWI delivering an earnings beat are unlikely this time around as it has an Earnings ESP of 0.00% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for its second-quarter EPS is pegged at $1.53, indicating a rise of 10.9% from the year-ago reported figure. The consensus mark for revenues is $360.65 million, implying a 10.8% year-over-year rise.

Eagle Materials — a manufacturer of heavy construction products and light building materials — topped earnings estimates in three of the trailing four quarters and missed on one occasion, with the average being negative 2.6%.

EXP is scheduled to report first-quarter fiscal 2025 results before the opening bell. EXP is likely to beat earnings this time as it has an Earnings ESP of +2.20% and a Zacks Rank #3.

The Zacks Consensus Estimate for its fiscal first-quarter EPS is pegged at $3.57, indicating a rise of 0.6% from the year-ago reported figure. The consensus estimate for revenues is pegged at $609.21 million, implying 1.3% year-over-year growth.

UFP Industries — a supplier of wood, wood composite and other products to retail, industrial and construction markets — topped earnings estimates just once and missed on other three occasions, with the average being 3.4%.

UFPI is slated to report second-quarter results before the opening bell. It has an Earnings ESP of 0.00% and a Zacks Rank #3, which does not conclusively predict an earnings beat this time around.

The Zacks Consensus Estimate for its second-quarter EPS is pegged at $2.00, indicating a decline of 15.3% from the year-ago period. The consensus mark for revenues is $1.87 billion, implying an 8.5% year-over-year fall.

M/I Homes — a leading homebuilder of single-family homes — topped earnings estimates in three of the trailing four quarters and missed on one occasion, with the average being 19%.

MHO is slated to report second-quarter results before the opening bell. It is unlikely to beat earnings this time as it has an Earnings ESP of -4.24% and carries a Zacks Rank #3. (Read more: M/I Homes Gears Up for Q2 Earnings: What to Expect?)

The Zacks Consensus Estimate for its second-quarter EPS is pegged at $4.60, indicating growth of 11.7% from the year-ago reported period. The consensus estimate for revenues is pegged at $1.06 billion, suggesting a 4.3% year-over-year increase.

Watsco — North America’s largest distributor of Heating, ventilation and air conditioning equipment, as well as related parts and supplies (HVAC/R) — topped earnings estimates in two of the trailing four quarters and missed twice, with the average being -7.5%.

WSO is scheduled to report second-quarter results before the opening bell. It is unlikely to beat earnings this time as it has an Earnings ESP of +2.92% and a Zacks Rank #4 (Sell).

The Zacks Consensus Estimate for its second-quarter EPS is pegged at $4.70, indicating growth of 6.3% from the year-ago quarter. The consensus mark for revenues is $2.13 billion, suggesting 6.5% year-over-year growth.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.