5 construction stocks set to beat third-quarter earnings estimates


Improving manufacturing and infrastructure activities are expected to benefit the construction sector in the third quarter of 2022, defying various challenges such as rising mortgage rates, persistent supply chain bottlenecks, constraints labor market and inflationary pressures.

According to the latest earnings trends report, the third-quarter earnings season has so far seen releases of around 8% of the construction sector’s market capitalization on the S&P 500 index. Among them, 100 % were able to beat earnings estimates, but none of them were able to beat sales estimates.

Notably, seven of Zacks 16 sectors are expected to post year-over-year gains. Construction is among those that could have seen solid growth rates in the quarter.

Factors Affecting Third Quarter Results

The sector is expected to have benefited from modest gains in housing construction investment. Although homeowner spending on home improvement and repair is expected to slow, growth in home improvement and repair spending is expected to remain well above the historical market average. Thus, construction material suppliers should have benefited from this improvement. Strong demand from non-residential and infrastructure activities for private and public project work should have supported growth.

Additionally, prudent cost reduction efforts, a disciplined approach to tendering, project management, the strength of funding programs in all states, and increased demand for road repair and maintenance probably played a driving role in the quarterly performance of companies. Additionally, add-on acquisitions should have supported their core lines and broadened their geographic reach and product portfolio.

However, the Fed’s hawkish decision to fight inflation along with rising house prices should have conspired to limit buying and selling activity in the quarter. Challenges in the housing industry persist in the form of low supply levels, shortages of skilled labor and soaring input prices.

Again, rising raw material costs due to supply chain disruptions have likely affected corporate margins. Higher land, labor and transportation costs may have been impediments. Although inflation may have limited the rise in margins, companies took action on pricing, which should have helped offset these headwinds to some extent.

Third trimester expectations

The overall picture of the estimate is not bad for the broader Zacks Construction sector amid challenges associated with supply chain disruptions, inflation and transportation costs. According to the latest earnings trends, profits in the construction sector are expected to increase by 23.8% in the third quarter. The growth rate is expected to have increased from the 21.4% recorded in the second quarter of 2022. Revenue is expected to increase by 17.1%, suggesting a slight decline from the 17.3% growth recorded in the previous quarter .

What are the good choices?

Given the headwinds, it’s not easy to find stocks that are likely to beat earnings estimates. Here, the Zacks methodology comes in handy as it helps identify stocks that not only exhibit strong fundamentals, but are also poised to beat estimates this earnings season.

You can refine the list with the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP. You can discover the best stocks to buy or sell before they’re flagged with our earnings ESP filter. You can see the full list of today’s Zacks #1 Rank stocks here.

Our research shows that for stocks with this combination, the odds of beating earnings are as high as 70%.

Earnings ESP is our proprietary methodology for determining which stocks have the best chance of performing better in their next earnings announcement. It shows the percentage difference between the most accurate estimate and the Zacks consensus estimate.

Winning Actions

For investors willing to adopt this strategy, we’ve highlighted five construction stocks that could stand out this earnings season.

Based in Winchester, Virginia, Trex Company, Inc. TREX – which manufactures and distributes decking, railing and outdoor products and accessories – has exceeded earnings estimates for the past four quarters, with the average surprise being 10.8%.

TREX is poised to beat expectations when it releases its third quarter 2022 results on October 31, after the market closes. He wears a Zacks Rank #3 and has a +25.62% Earnings ESP, as of now.

Customers’ continued investment in improving their outdoor living experience likely contributed to the company’s quarterly performance. Favorable price/mix and the focus on cost reduction efforts and production efficiency are additional strengths.

Trex Company, Inc. EPS Awards and Surprise

Trex Company, Inc. price-eps-surprise | Trex Company, Inc. Quote

Based in Stamford, Connecticut, United Rentals, Inc. URI – the world’s largest equipment rental company – beat earnings estimates in three of the past four quarters and missed an opportunity, with the average surprise being 8%.

URI is poised to exceed expectations when it releases its third quarter 2022 results on October 26, after the closing bell. He wears a Zacks Rank #3 and has a +1.46% Earnings ESP, as of now.

Improved fleet productivity thanks to widespread rental demand in the non-residential construction and industrial verticals, higher total and rental income and stronger pricing bode well for the company’s quarterly performance.

United Rentals, Inc. Awards and EPS Surprise

United Rentals, Inc. Awards and EPS Surprise

United Rentals, Inc. price-eps-surprise | United Rentals, Inc. Quote

Based in Toledo, Ohio, Owens Corning OC – a global leader in building materials systems and composite solutions – has exceeded earnings estimates for the past four quarters, with the average surprise being 12.2%.

OC is poised to beat expectations when it releases its third quarter 2022 results on October 26, before the opening bell. He carries a Zacks Rank #2 and has a +4.09% Earnings ESP, as of now.

Higher demand in markets served, structural improvements, strategic investments, strong commercial and operational execution and focus on acquisitions should be reflected in quarterly performance.

Owens Corning Inc Awards and EPS Surprise

Owens Corning Inc Awards and EPS Surprise

Owens Corning Inc price-eps-surprise | Owens Corning Inc Quote

Boise Cascade Company BCC manufactures wood products and distributes building materials. The company has exceeded earnings estimates in the past four quarters, with the average surprise being 27.1%.

BCC is poised to beat expectations when it releases its third quarter 2022 results on November 1.

The acquisition of Coastal Plywood Company, growth in EWP capacity and general line products should be reflected in quarterly performance despite economic uncertainty and projected weak demand for new residential construction.

Boise Cascade, LLC Awards and EPS Surprise

Boise Cascade, LLC Awards and EPS Surprise

Boise Cascade, LLC price-eps-surprise | Quote Boise Cascade, LLC

Pulte Group, Inc. PHM – an Atlanta, Georgia-based homebuilder – has exceeded earnings estimates in three of the past four quarters and missed an opportunity, with the average surprise being 5.6%.

PHM is poised to beat expectations when it releases its third quarter 2022 results on October 25, before the opening bell. He wears a Zacks Rank #3 and has a +0.18% Earnings ESP, as of now.

The solid level of the order book, the improvement of the gross margin and the leverage effect of general expenses should have supported the growth for the quarter to come.

PulteGroup, Inc. Awards and EPS Surprise

PulteGroup, Inc. Awards and EPS Surprise

PulteGroup, Inc. price-eps-surprise | Quote from PulteGroup, Inc.

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