3 Construction Stocks Poised to Beat Q4 Earnings Estimates
The Construction sector is poised to gain from heightened infrastructure projects and a shift toward energy transition initiatives during the fourth quarter of 2023. However, challenges such as a slowdown in residential activities, given high borrowing costs, weather-related impacts, and elevated labor costs, may hinder overall performance.
Per the latest Earnings Trends report, the fourth-quarter earnings season has so far seen releases from approximately 70.7% of the construction sector’s market capitalization on the S&P 500 Index. Of them, the sector’s total earnings are down 2.5% from the year-ago period on 1.8% higher revenues, with 87.5% beating earnings per share (EPS) estimates and 62.5% beating revenue estimates.
With the help of the Zacks Stock Screener, we have identified three construction stocks, namely JELD-WEN Holding, Inc. JELD, Floor & Decor Holdings, Inc. FND and Vulcan Materials Company VMC, which are poised to beat the Zacks Consensus Estimate this earnings season.
Factors Shaping Quarterly Performance
The Construction sector's performance in the fourth quarter of 2023 showcases distinct trends across residential and non-residential segments.
For residential-focused companies, challenges persist amidst higher mortgage rates and escalating costs of materials and labor. Consequently, these firms are expected to report lower earnings compared to the same period last year, reflecting softened demand due to higher mortgage rates. However, factors such as the enduring aspiration for home ownership, limited availability of existing homes, modest repair and remodeling activities, and a commitment to cost management contribute to sequential growth.
Conversely, non-residential industry players stand to benefit from heightened demand for infrastructure solutions aimed at advancing energy transition and enhancing reliability, safety, and efficiency. Strong global trends in infrastructure modernization, energy transition, national security, and potential supply-chain investments bolster quarterly results. Additionally, investments in telecommunications networks, especially in 5G technologies, further support performance. Meanwhile, construction companies' business operations are susceptible to weather-related risks in the fourth quarter. Nonetheless, the extension of the construction season due to a mild winter this time is expected to contribute to the growth.
Overall, prudent cost-saving measures, disciplined project management, robust funding programs, and increased demand for road repair and maintenance, coupled with strategic acquisitions, underpin the sector's performance. These actions have expanded geographical reach and product offerings, driving growth during the quarter.
Q4 Expectations
The overall estimate picture is a mixed one for the broader Zacks Construction sector amid challenges associated with the soft residential market, weather-related headwinds, high expenses and labor constraints from the year-ago perspective. Per the latest Earnings Trends report, construction sector earnings are expected to inch up 0.4% for the fourth quarter. This indicates almost the same picture from the third quarter of 2023 growth of 0.9%. Revenues are projected to increase 3.6%, suggesting a deceleration from 5.4% 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 three construction stocks that may stand out this earnings season.
JELD-WEN — a residential and non-residential buildings products supplier — topped earnings estimates in all the trailing four quarters, with the average being 126.5%.
JELD is likely to beat expectations when it reports fourth-quarter 2023 results on Feb 19, after market close. This Zacks Rank #3 company has an Earnings ESP of +10.90%.
The Zacks Consensus Estimate for JELD’s fourth-quarter EPS is pegged at 25 cents, representing a decline of 46.8% from the year-ago reported figure.
JELD-WEN Holding, Inc. Price and EPS Surprise
JELD-WEN Holding, Inc. price-eps-surprise | JELD-WEN Holding, Inc. Quote
Floor & Décor — a multi-channel specialty retailer and commercial flooring distributor — topped earnings estimates in two of the trailing four quarters and missed in one and met on another occasion, with the average surprise being 4.9%.
FND is likely to beat expectations when it reports fourth-quarter fiscal 2023 results on Feb 22, after market close. This Zacks Rank #2 company has an Earnings ESP of +6.74%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for FND’s fiscal fourth-quarter EPS is pegged at 27 cents, representing a decline of 57.8% from the year-ago reported figure.
Floor & Decor Holdings, Inc. Price and EPS Surprise
Floor & Decor Holdings, Inc. price-eps-surprise | Floor & Decor Holdings, Inc. Quote
Vulcan — a construction aggregates producer — topped earnings estimates in three of the trailing four quarters and missed on one occasion, with the average surprise being 13.6%.
VMC is likely to beat expectations when it reports fourth-quarter 2023 results on Feb 16, before market open. This Zacks Rank #3 company has an Earnings ESP of +3.08%.
The Zacks Consensus Estimate for VMC’s fourth-quarter EPS is pegged at $1.36, representing a growth of 25.9% from the year-ago reported figure (read more: Vulcan Queued for Q4 Earnings: What Factors to Note).
Vulcan Materials Company Price and EPS Surprise
Vulcan Materials Company price-eps-surprise | Vulcan Materials Company Quote
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