We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
5 Construction Stocks Set to Carve a Beat in Q4 Earnings
Read MoreHide Full Article
The construction sector is expected to have finished 2021 on a strong note, defying continuous supply-chain bottlenecks and labor market constraints. A positive residential backdrop and an improvement in manufacturing and infrastructural activities might have aided the sector in the final quarter of 2021. Yet, persistent supply woes, inflationary pressure and higher freight costs are likely to reflect on the construction sector’s Q4 results.
Per the latest Earnings Trends report, the Q4 earnings season has so far seen releases from approximately 8.3% of the construction sector’s market capitalization in the S&P 500 Index. While 100% of them posted an earnings beat, none of them surpassed revenue estimates.
Factors Influencing Q4 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 impacts of the COVID-19 pandemic, shortage of skilled labor and a huge upsurge in input prices, factors like higher demand stemming from an expected rise of borrowing costs in the future are likely to have acted as a tailwind. Further, the desire to own a home amid the pandemic-induced work-home-home trend worked in its favor. The sector has also been gaining from higher demand owing to accelerated repair and remodel activity.
Apart from positive residential momentum, broadly warmer temperatures and drier weather and solid demand from non-residential and infrastructural activities for both private and public project work are 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.
Yet, 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 may have limited margin upside, companies have been taking pricing actions, which should have helped them offset such headwinds to some extent.
Q4 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 Trends report, construction sector earnings are expected to increase 20.2% for the fourth quarter. This is almost in line with the 21% growth registered in third-quarter 2021. Revenues are projected to increase 14.9%, suggesting an improvement from 14.1% growth registered in the prior quarter.
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 45.5%.
BCC has been witnessing higher demand for engineered wood and general line products. This is helping it navigate the challenging backdrop associated with supply-induced constraints and volatility in lumber and panel pricing.
Headquartered in Taylor, MI, Masco Corporation (MAS - Free Report) — which manufactures, sells and installs home improvement and building products — topped earnings estimates in all the trailing four quarters, with the average being 14.9%.
Masco is poised to beat expectations when it reports fourth-quarter 2021 results on Feb 8, before the opening bell. It carries a Zacks Rank #2 and has an Earnings ESP of +6.13%, at present. North American Plumbing continues to benefit Masco. Inorganic strategies, cost-saving initiatives and industry-leading branded building products also bode well.
Floor & Decor Holdings, Inc. (FND - Free Report) — a multi-channel specialty retailer and commercial flooring distributor based in Atlanta, GA — beat earnings estimates in all the last four quarters, with the average being 14.5%.
Floor & Decor is likely to beat expectations when it reports fourth-quarter fiscal 2021 results. Currently, the company carries a Zacks Rank #3 and has an Earnings ESP of +4.55%. FND continues to benefit from the unique business model that offers broad, innovative trend-forward assortments in project-ready quantities, persistent domestic market share gains in Retail, a bolstered presence in Commercial and a strengthening omni-channel framework. Its investments in key digital, Pro, adjacent category and Commercial initiatives bode well.
Floor & Decor Holdings, Inc. Price and EPS Surprise
Louisiana-Pacific Corporation (LPX - Free Report) — a Nashville, TN-based home construction supplier — topped earnings estimates in all the trailing four quarters, with the average being 10.5%.
Louisiana-Pacific is likely to beat expectations when it reports fourth-quarter 2021 results on Feb 22, before the opening bell. This Zacks Rank #1 company has an Earnings ESP of +1.08%. In addition to solid demand from the U.S. residential market, strategic business transformation, effective cash management and inorganic moves are anticipated to have acted as tailwinds. For fourth-quarter 2021, LPX expects Siding Solutions revenue growth to be 5% from the year-ago period. Oriented Strand Board or OSB revenues are expected to sequentially fall 30% owing to the average OSB price.
LouisianaPacific Corporation Price and EPS Surprise
Martin Marietta Materials, Inc. (MLM - Free Report) — a Raleigh, NC-based company that produces and supplies construction aggregates as well as other heavy building materials (mainly cement) — topped earnings estimates in two of the trailing four quarters but missed the same on other occasions, with the average surprise being 33.4%.
Martin Marietta is likely to beat expectations when it reports fourth-quarter 2021 results on Feb 10, before market open. Currently, the company carries a Zacks Rank #2 and has an Earnings ESP of +1.40%. Similar to other aggregates and cement producers, Martin Marietta is expected to have witnessed higher shipments owing to broadly warmer temperature and drier weather. Single-family housing strength, expanded infrastructure investment and heavy industrial projects of scale are expected to have supported its quarterly shipments. Also, the Lehigh Hanson, Inc.’s West Region business (in the Lehigh West Region) buyout provided Martin Marietta with a new upstream materials-led growth platform across many growing mega regions in California and Arizona.
Martin Marietta Materials, Inc. Price, Consensus and EPS Surprise
Image: Bigstock
5 Construction Stocks Set to Carve a Beat in Q4 Earnings
The construction sector is expected to have finished 2021 on a strong note, defying continuous supply-chain bottlenecks and labor market constraints. A positive residential backdrop and an improvement in manufacturing and infrastructural activities might have aided the sector in the final quarter of 2021. Yet, persistent supply woes, inflationary pressure and higher freight costs are likely to reflect on the construction sector’s Q4 results.
Per the latest Earnings Trends report, the Q4 earnings season has so far seen releases from approximately 8.3% of the construction sector’s market capitalization in the S&P 500 Index. While 100% of them posted an earnings beat, none of them surpassed revenue estimates.
Factors Influencing Q4 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 impacts of the COVID-19 pandemic, shortage of skilled labor and a huge upsurge in input prices, factors like higher demand stemming from an expected rise of borrowing costs in the future are likely to have acted as a tailwind. Further, the desire to own a home amid the pandemic-induced work-home-home trend worked in its favor. The sector has also been gaining from higher demand owing to accelerated repair and remodel activity.
Apart from positive residential momentum, broadly warmer temperatures and drier weather and solid demand from non-residential and infrastructural activities for both private and public project work are 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.
Yet, 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 may have limited margin upside, companies have been taking pricing actions, which should have helped them offset such headwinds to some extent.
Q4 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 Trends report, construction sector earnings are expected to increase 20.2% for the fourth quarter. This is almost in line with the 21% growth registered in third-quarter 2021. Revenues are projected to increase 14.9%, suggesting an improvement from 14.1% growth registered in the prior quarter.
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 45.5%.
Boise Cascade is likely to beat expectations when it reports fourth-quarter 2021 results. This Zacks Rank #1 company has an Earnings ESP of +9.09%. You can see the complete list of today’s Zacks #1 Rank stocks here.
BCC has been witnessing higher demand for engineered wood and general line products. This is helping it navigate the challenging backdrop associated with supply-induced constraints and volatility in lumber and panel pricing.
Boise Cascade, L.L.C. Price and EPS Surprise
Boise Cascade, L.L.C. price-eps-surprise | Boise Cascade, L.L.C. Quote
Headquartered in Taylor, MI, Masco Corporation (MAS - Free Report) — which manufactures, sells and installs home improvement and building products — topped earnings estimates in all the trailing four quarters, with the average being 14.9%.
Masco is poised to beat expectations when it reports fourth-quarter 2021 results on Feb 8, before the opening bell. It carries a Zacks Rank #2 and has an Earnings ESP of +6.13%, at present. North American Plumbing continues to benefit Masco. Inorganic strategies, cost-saving initiatives and industry-leading branded building products also bode well.
Masco Corporation Price and EPS Surprise
Masco Corporation price-eps-surprise | Masco Corporation Quote
Floor & Decor Holdings, Inc. (FND - Free Report) — a multi-channel specialty retailer and commercial flooring distributor based in Atlanta, GA — beat earnings estimates in all the last four quarters, with the average being 14.5%.
Floor & Decor is likely to beat expectations when it reports fourth-quarter fiscal 2021 results. Currently, the company carries a Zacks Rank #3 and has an Earnings ESP of +4.55%. FND continues to benefit from the unique business model that offers broad, innovative trend-forward assortments in project-ready quantities, persistent domestic market share gains in Retail, a bolstered presence in Commercial and a strengthening omni-channel framework. Its investments in key digital, Pro, adjacent category and Commercial initiatives bode well.
Floor & Decor Holdings, Inc. Price and EPS Surprise
Floor & Decor Holdings, Inc. price-eps-surprise | Floor & Decor Holdings, Inc. Quote
Louisiana-Pacific Corporation (LPX - Free Report) — a Nashville, TN-based home construction supplier — topped earnings estimates in all the trailing four quarters, with the average being 10.5%.
Louisiana-Pacific is likely to beat expectations when it reports fourth-quarter 2021 results on Feb 22, before the opening bell. This Zacks Rank #1 company has an Earnings ESP of +1.08%. In addition to solid demand from the U.S. residential market, strategic business transformation, effective cash management and inorganic moves are anticipated to have acted as tailwinds. For fourth-quarter 2021, LPX expects Siding Solutions revenue growth to be 5% from the year-ago period. Oriented Strand Board or OSB revenues are expected to sequentially fall 30% owing to the average OSB price.
LouisianaPacific Corporation Price and EPS Surprise
LouisianaPacific Corporation price-eps-surprise | LouisianaPacific Corporation Quote
Martin Marietta Materials, Inc. (MLM - Free Report) — a Raleigh, NC-based company that produces and supplies construction aggregates as well as other heavy building materials (mainly cement) — topped earnings estimates in two of the trailing four quarters but missed the same on other occasions, with the average surprise being 33.4%.
Martin Marietta is likely to beat expectations when it reports fourth-quarter 2021 results on Feb 10, before market open. Currently, the company carries a Zacks Rank #2 and has an Earnings ESP of +1.40%. Similar to other aggregates and cement producers, Martin Marietta is expected to have witnessed higher shipments owing to broadly warmer temperature and drier weather. Single-family housing strength, expanded infrastructure investment and heavy industrial projects of scale are expected to have supported its quarterly shipments. Also, the Lehigh Hanson, Inc.’s West Region business (in the Lehigh West Region) buyout provided Martin Marietta with a new upstream materials-led growth platform across many growing mega regions in California and Arizona.
Martin Marietta Materials, Inc. Price, Consensus and EPS Surprise
Martin Marietta Materials, Inc. price-consensus-eps-surprise-chart | Martin Marietta Materials, Inc. Quote
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.