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The construction sector is in fine fettle buoyed by robust gains from home building investments, strong economic growth and recent tax reforms. That said, political and economic uncertainties continue to affect the sector. One such obstacle is the recent imposition of tariffs on imported steel and aluminum. An increase in import tariff will escalate raw material cost for builders, which are grappling with increased cost, thanks to the imposition of lumber tariff. This, along with high cost of land and labor and mortgage rate hikes, raises concern.
Spending on construction projects in the United States inched up marginally in February, after a flat January. However, the figure logged an annual growth rate of 3%, as revealed by the Commerce Department. The solid labor market along with robust consumer confidence supported an increase in non-residential (lodging and office) construction.
Positives such as an improving economy, modest wage growth, low unemployment and positive consumer confidence work in favor of the sector. President Trump had vowed to double economic growth through an ambitious stimulus program featuring tax cuts, deregulation and higher infrastructure spending.
Per a study by Dodge Data & Analytics, new construction starts in March increased 11% from the previous month, marking the highest level over the past six months. The considerable improvement followed modest declines in January (down 2%) and February (down 3%). Overall, in the first quarter of 2018, though total construction starts on an unadjusted basis were down 7% from the year-ago quarter, it rose 1% year over year.
The implications of the metal tariffs and mortgage hike are yet to be felt in the sector that has occupied the second position out of 16 sectors based on our in-house classification. Notably, a sector with a larger percentage of Zacks Rank #1 (Strong Buy) and 2 (Buy) stocks will have a better average than the rest.
Q1 Expectations
As we take a closer look at the earnings season, we see a steady improvement over the past few quarters. So far, this earnings season has seen releases from 87 S&P 500 members, with 82.8% beating EPS estimates and 67.8% beating revenue estimates.
According to the latest Earnings Preview, total earnings in first-quarter 2018 are expected to be up 18.3% from the prior-year quarter on 7.7% higher revenues compared with 13.4% earnings growth in the fourth quarter of 2017 on 8.6% rise in revenues.
The construction sector’s earnings are expected to increase 38.1% in the quarter under review compared with 20.6% in the prior quarter. Revenues are also expected to improve 15.9% (13.3% growth in fourth-quarter 2017).
Now let us take a look at how the following construction companies are placed ahead of their quarterly release on Apr 24.
Our research shows that when a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) stock has a positive Earnings ESP, the chance of beating earnings estimates is high. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Masco Corporation (MAS - Free Report) is scheduled to report results, before market opens. The company managed to surpassed the Zacks Consensus Estimate in two of the trailing four quarters, with an average positive surprise of 3.5%. Last quarter, the company came up with a positive earnings surprise of 2.3%.
Recent buyouts along with high demand for repair and remodeling are likely to drive Masco's quarterly results. Recently, the company acquired Kichler Lighting and Mercury Plastics. These acquisitions are expected to be accretive to Masco’s earnings in the to-be-reported quarter. Moreover, Strong demand from repair and remodeling products in all channels of distribution are also expected to boost revenues.
However, sales and operating profit will be reduced due to the divestiture of Arrow Fastener. Also, increased investments in showroom displays can hurt margins to some extent. (read more: What's in the Cards for Masco This Earnings Season?)
Our proven model does not show that Ingredion is likely to beat earnings this quarter as it has an Earnings ESP of -0.36% and a Zacks Rank #3.
Overall, for the first quarter, the Zacks Consensus Estimate for total revenues is pegged at $1.86 billion, implying 4.6% growth. This is likely to translate into higher earnings. The consensus estimate for earnings is pegged at 49 cents, reflecting a 19.5% year-over-year increase.
The Sherwin-Williams Company (SHW - Free Report) is set to release results ahead of the bell. In the last quarter, the paints and coatings giant missed the Zacks Consensus Estimate by 7.2%. The company beat the Zacks Consensus Estimate in two of the trailing four quarters delivering an average positive surprise of around 0.8%.
The Valspar acquisition has enabled Sherwin-Williams to strengthen its position as a leading paints and coatings provider globally, leveraging highly complementary offerings, strong brands and technologies. Sherwin-Williams will gain from significant synergies of the acquisition in the to-be-reported quarter.
Sherwin-Williams’ cost-control initiatives, working capital reductions, supply chain optimization and productivity improvement should yield margin benefits. Working capital management and efforts to cut operating costs are generating healthy cash flows. Moreover, addition of Valspar-related sales are projected to support the company’s top line in the to-be-reported quarter. However, increased raw materials costs mar growth prospects. (read more: What's in Store for Sherwin-Williams in Q1 Earnings?)
Overall, for the first quarter, the Zacks Consensus Estimate for total revenues is pegged at $3.98 billion, implying 44.3% growth. The consensus estimate for earnings is pegged at $3.14, reflecting a 38.3% year-over-year increase.
Meanwhile, our proven model does not hint at an earnings beat for the company this quarter, as Sherwin-Williams has an Earnings ESP of -2.90% and Zacks Rank #3.
The Sherwin-Williams Company Price and EPS Surprise
Watsco Inc. (WSO - Free Report) is the largest distributor of Heating, ventilation and air conditioning equipment as well as related parts and supplies in the United States. Watsco surpassed estimates once in the past four quarters resulting in an average negative surprise of 6.95%. Watsco is likely to benefit from focus on strategic acquisitions, cost-cutting initiatives and growth potential in the replacement market.
Watsco consistently transforms its business into the digital age by investing in scalable platforms for mobile apps, e-commerce, business intelligence and supply-chain optimization. Its technology evolution continues to make progress.
Overall, the Zacks Consensus Estimate for earnings is pegged at 89 cents, reflecting 32.8% year-over-year growth. The consensus estimate for revenues is pegged at $912.9 million, implying a 4.8% increase.
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
Image: Bigstock
Construction Stocks Apr 24 Q1 Earnings Roster: MAS, SHW & WSO
The construction sector is in fine fettle buoyed by robust gains from home building investments, strong economic growth and recent tax reforms. That said, political and economic uncertainties continue to affect the sector. One such obstacle is the recent imposition of tariffs on imported steel and aluminum. An increase in import tariff will escalate raw material cost for builders, which are grappling with increased cost, thanks to the imposition of lumber tariff. This, along with high cost of land and labor and mortgage rate hikes, raises concern.
Spending on construction projects in the United States inched up marginally in February, after a flat January. However, the figure logged an annual growth rate of 3%, as revealed by the Commerce Department. The solid labor market along with robust consumer confidence supported an increase in non-residential (lodging and office) construction.
Positives such as an improving economy, modest wage growth, low unemployment and positive consumer confidence work in favor of the sector. President Trump had vowed to double economic growth through an ambitious stimulus program featuring tax cuts, deregulation and higher infrastructure spending.
Per a study by Dodge Data & Analytics, new construction starts in March increased 11% from the previous month, marking the highest level over the past six months. The considerable improvement followed modest declines in January (down 2%) and February (down 3%). Overall, in the first quarter of 2018, though total construction starts on an unadjusted basis were down 7% from the year-ago quarter, it rose 1% year over year.
The implications of the metal tariffs and mortgage hike are yet to be felt in the sector that has occupied the second position out of 16 sectors based on our in-house classification. Notably, a sector with a larger percentage of Zacks Rank #1 (Strong Buy) and 2 (Buy) stocks will have a better average than the rest.
Q1 Expectations
As we take a closer look at the earnings season, we see a steady improvement over the past few quarters. So far, this earnings season has seen releases from 87 S&P 500 members, with 82.8% beating EPS estimates and 67.8% beating revenue estimates.
According to the latest Earnings Preview, total earnings in first-quarter 2018 are expected to be up 18.3% from the prior-year quarter on 7.7% higher revenues compared with 13.4% earnings growth in the fourth quarter of 2017 on 8.6% rise in revenues.
The construction sector’s earnings are expected to increase 38.1% in the quarter under review compared with 20.6% in the prior quarter. Revenues are also expected to improve 15.9% (13.3% growth in fourth-quarter 2017).
Now let us take a look at how the following construction companies are placed ahead of their quarterly release on Apr 24.
Our research shows that when a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) stock has a positive Earnings ESP, the chance of beating earnings estimates is high. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Masco Corporation (MAS - Free Report) is scheduled to report results, before market opens. The company managed to surpassed the Zacks Consensus Estimate in two of the trailing four quarters, with an average positive surprise of 3.5%. Last quarter, the company came up with a positive earnings surprise of 2.3%.
Recent buyouts along with high demand for repair and remodeling are likely to drive Masco's quarterly results. Recently, the company acquired Kichler Lighting and Mercury Plastics. These acquisitions are expected to be accretive to Masco’s earnings in the to-be-reported quarter. Moreover, Strong demand from repair and remodeling products in all channels of distribution are also expected to boost revenues.
However, sales and operating profit will be reduced due to the divestiture of Arrow Fastener. Also, increased investments in showroom displays can hurt margins to some extent. (read more: What's in the Cards for Masco This Earnings Season?)
Our proven model does not show that Ingredion is likely to beat earnings this quarter as it has an Earnings ESP of -0.36% and a Zacks Rank #3.
Overall, for the first quarter, the Zacks Consensus Estimate for total revenues is pegged at $1.86 billion, implying 4.6% growth. This is likely to translate into higher earnings. The consensus estimate for earnings is pegged at 49 cents, reflecting a 19.5% year-over-year increase.
Masco Corporation Price and EPS Surprise
Masco Corporation Price and EPS Surprise | Masco Corporation Quote
The Sherwin-Williams Company (SHW - Free Report) is set to release results ahead of the bell. In the last quarter, the paints and coatings giant missed the Zacks Consensus Estimate by 7.2%. The company beat the Zacks Consensus Estimate in two of the trailing four quarters delivering an average positive surprise of around 0.8%.
The Valspar acquisition has enabled Sherwin-Williams to strengthen its position as a leading paints and coatings provider globally, leveraging highly complementary offerings, strong brands and technologies. Sherwin-Williams will gain from significant synergies of the acquisition in the to-be-reported quarter.
Sherwin-Williams’ cost-control initiatives, working capital reductions, supply chain optimization and productivity improvement should yield margin benefits. Working capital management and efforts to cut operating costs are generating healthy cash flows. Moreover, addition of Valspar-related sales are projected to support the company’s top line in the to-be-reported quarter. However, increased raw materials costs mar growth prospects. (read more: What's in Store for Sherwin-Williams in Q1 Earnings?)
Overall, for the first quarter, the Zacks Consensus Estimate for total revenues is pegged at $3.98 billion, implying 44.3% growth. The consensus estimate for earnings is pegged at $3.14, reflecting a 38.3% year-over-year increase.
Meanwhile, our proven model does not hint at an earnings beat for the company this quarter, as Sherwin-Williams has an Earnings ESP of -2.90% and Zacks Rank #3.
The Sherwin-Williams Company Price and EPS Surprise
The Sherwin-Williams Company Price and EPS Surprise | The Sherwin-Williams Company Quote
Watsco Inc. (WSO - Free Report) is the largest distributor of Heating, ventilation and air conditioning equipment as well as related parts and supplies in the United States. Watsco surpassed estimates once in the past four quarters resulting in an average negative surprise of 6.95%. Watsco is likely to benefit from focus on strategic acquisitions, cost-cutting initiatives and growth potential in the replacement market.
Watsco consistently transforms its business into the digital age by investing in scalable platforms for mobile apps, e-commerce, business intelligence and supply-chain optimization. Its technology evolution continues to make progress.
Our proven model hints at an earnings beat for the company this quarter, as Watsco has an Earnings ESP of +3.96% and Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Overall, the Zacks Consensus Estimate for earnings is pegged at 89 cents, reflecting 32.8% year-over-year growth. The consensus estimate for revenues is pegged at $912.9 million, implying a 4.8% increase.
Watsco, Inc. Price and EPS Surprise
Watsco, Inc. Price and EPS Surprise | Watsco, Inc. Quote
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>