The Zacks Construction sector is poised to release its second-quarter results amid a challenging environment marked by high interest rates and rising material and labor costs. Although the shortage of existing homes for sale is somewhat driving single-family residential construction, the uncertainty surrounding the Federal Reserve's rate cuts remains a significant obstacle. Nevertheless, the sector is benefiting from a substantial infrastructure drive led by the U.S. government, as well as growth in the telecommunication and renewable energy industries.

Factors Shaping Quarterly Performance

Distinct trends in residential and non-residential markets are expected to shape the sector's performance in the second quarter of 2024. The housing industry faces headwinds from higher mortgage rates, affordability issues, and labor shortages, which are deterring potential buyers. Despite earlier hints from Fed officials about potential rate cuts, the focus has now shifted to a cautious approach dependent on inflation levels. Also, softness in repair and remodeling activities is expected to weigh on the results. However, the limited availability of existing homes and effective cost-management efforts are likely to have contributed positively to growth.

On the other hand, the non-residential sector is bolstered by strong global trends in infrastructure modernization, energy transition, national security, and supply-chain investments. Additional investments in telecommunications networks, particularly in 5G technologies, along with environmental remediation and climate resilience initiatives, further support the sector's performance. Despite these positive factors, concerns about capital spending fluctuations and commodity price volatility persist.

Overall, while challenges remain, the sector's diverse growth drivers are expected to deliver a mixed yet favorable performance in the second quarter of 2024.
    
With the help of the Zacks Stock Screener, we have identified five construction stocks, namely AAON, Inc. (AAON Quick QuoteAAON - Free Report) , Aspen Aerogels, Inc. (ASPN Quick QuoteASPN - Free Report) , Comfort Systems USA, Inc. (FIX Quick QuoteFIX - Free Report) , Dycom Industries, Inc. (DY Quick QuoteDY - Free Report) and EMCOR Group, Inc. (EME Quick QuoteEME - Free Report) , which are poised to beat the Zacks Consensus Estimate this earnings season.

Q2 Expectations

So far, 7.7% of construction companies have reported their results for this earnings season. The overall estimate picture looks tepid for the broader Zacks Construction sector. Per the latest Earnings Trends report, construction sector earnings are expected to rise 2.2% for the second quarter. This indicates a decline from the first quarter's growth rate of 12.6%. Revenues are projected to increase 4.2%, indicating a deceleration from 7% growth registered in the prior quarter.

Which Are the Right Picks?

Given the wide range of companies in this space, 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.

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. Our research shows that for stocks with this combination, the chances of delivering earnings beat are as high as 70%.

Winning Stocks

For investors willing to adopt this strategy, we have highlighted five construction stocks that may stand out this earnings season.

AAON — the Tulsa, OK-based air conditioning and heating equipment company — topped earnings estimates in three of the trailing four quarters and missed on one occasion, with the average being 9.7%.

AAON is likely to beat expectations when it reports second-quarter 2024 results on Aug 1, after market close. This Zacks Rank #2 company has an Earnings ESP of +0.94%.

The Zacks Consensus Estimate for its second-quarter earnings per share (EPS) is pegged at 54 cents, indicating a decline of 1.8% from the year-ago reported figure. Nonetheless, it moved upward by a cent in the past month. The company maintains a balance between new construction and replacement applications and is making the most of robust replacement demand. Investments in human capital and technology are also a priority, ensuring efficient business management and adaptability to targeted growth rates.

Aspen Aerogels — Northborough, MA-based technology leader in sustainability and electrification solutions — topped earnings estimates in the trailing four quarters, with the average being 68.2%.

ASPN is likely to beat expectations when it reports second-quarter 2024 results on Aug 7, after market close. This Zacks Rank #1 company has an Earnings ESP of +23.53%.

The Zacks Consensus Estimate for its second-quarter EPS is pegged at 5 cents, implying an increase of 122.7% from the year-ago reported loss of 22 cents. The company is benefiting from resilient growth in the Thermal Barriers business. It remains deeply engaged with a growing list of automotive OEMs and battery cell manufacturers.

Comfort Systems — a national provider of comprehensive heating, ventilation and air conditioning installation and services — topped earnings estimates in three of the trailing four quarters and missed on one occasion, with the average being 20.4%.

FIX is likely to beat expectations when it reports second-quarter 2024 results on Jul 25, after market close. This Zacks Rank #2 company has an Earnings ESP of +2.25%.

The Zacks Consensus Estimate for its second-quarter EPS is pegged at $3.11, indicating growth of 61.1% from the year-ago period. FIX is witnessing strong demand in the technology and manufacturing sectors. (Read more: Is Comfort Systems Stock a Buy Before Q2 Earnings?)

Dycom, a specialty contracting firm primarily operating in the telecom industry, topped earnings estimates in three of the trailing four quarters and missed once, with the average being 30.2%.

DY is likely to beat expectations when it reports second-quarter fiscal 2025 results. This Zacks Rank #2 company has an Earnings ESP of +4.43%.

The Zacks Consensus Estimate for its second-quarter fiscal 2025 EPS is pegged at $2.18, implying growth of 7.4% from the year-ago reported figure. The company’s EPS increased 2 cents in the past seven days. It is reaping the benefits of a robust mix and a steady stream of projects in expanding market sectors driven by long-term secular trends.

EMCOR, one of the leading providers of mechanical and electrical construction, industrial and energy infrastructure, as well as building services, topped earnings estimates in the trailing four quarters, with the average being 32%.

EME is likely to beat expectations when it reports second-quarter 2024 results on Jul 25, before market open. This Zacks Rank #3 company has an Earnings ESP of +4.76%.

The Zacks Consensus Estimate for its second-quarter EPS is pegged at $3.68, implying an increase of 24.8% from the year-ago reported figure. The company has been benefiting from increased project flows from high-tech manufacturing and network and communications market sectors due to solid demand for semiconductor and data center construction projects. (Read more: Should You Buy, Sell, or Hold EMCOR Before Q2 Earnings?)