5 Construction Stocks Set to Beat Estimates This Earnings Season
The Construction sector is likely to experience some relief from increased infrastructure projects, which will partially counterbalance the slowdown in residential activities compared with the same period last year during the third quarter of 2023.
Per the latest Earnings Trends report, the third-quarter earnings season has so far seen releases from approximately 45% of the construction sector’s market capitalization on the S&P 500 Index. Of them, the sector’s total earnings are down 5.9% from the year-ago period on 0.5% lower revenues, with 100% beating earnings per share (EPS) estimates and 60% beating revenue estimates.
With the help of the Zacks Stock Screener, we have identified five construction stocks, namely VSE Corporation VSEC, KBR, Inc. KBR, Construction Partners, Inc. ROAD, Louisiana-Pacific Corporation LPX and Dycom Industries, Inc. DY, which are poised to beat the Zacks Consensus Estimate this earnings season.
Factors Influencing Quarterly Results
Within the broader construction sector, the residential market is facing ongoing challenges with the escalation of mortgage rates and the increasing costs of raw materials and labor. Companies more closely aligned with the residential market are anticipated to report lower earnings in the quarter compared with the same period last year, as demand softens due to the upward trend in mortgage rates. Nevertheless, factors such as the persistent desire for home ownership, limited availability of existing homes for sale, modest repair and remodeling activities, a commitment to cost management, greater operating efficiency, and strategic acquisitions are likely to have contributed to these companies’ growth sequentially.
Conversely, non-residential industry participants are likely to have benefited from the heightened demand for infrastructure solutions aimed at bolstering energy transition efforts and enhancing overall reliability, safety, and efficiency. Strong global trends in infrastructure modernization, energy transition, national security and a potential super-cycle in global supply-chain investments will aid the companies to post solid quarterly results. Furthermore, the investment in telecommunications networks, geared toward delivering gigabit network speeds to both individual consumers and businesses via 5G technologies, is likely to have provided additional support for these companies' quarterly performance.
In general, judicious cost-saving measures, a disciplined approach to bidding and project management, robust funding programs spanning various states, and increased demand for road repair and maintenance, coupled with strategic bolt-on acquisitions, are expected to have underpinned their performances. These actions have likely expanded their geographical footprint and product offerings during the quarter.
Q3 Expectations
The overall estimate picture is a mixed one for the broader Zacks Construction sector amid challenges associated with the soft residential market, inflation, labor constraints and project delays from the year-ago perspective. Per the latest Earnings Trends report, construction sector earnings are expected to decrease 3.4% for the third quarter. This indicates an improvement from 10.5% decline registered in second-quarter 2023. Revenues are projected to increase 3.7%, suggesting a deceleration from 4.5% 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.
VSE — a diversified aftermarket products and services company — topped earnings estimates in three of the trailing four quarters and missed the other occasion, with the average being 15.3%.
VSEC is likely to beat expectations when it reports third-quarter 2023 results on Nov 1, after market close. This Zacks Rank #3 company has an Earnings ESP of +7.24%.
Solid contribution and improved profitability in both its Aviation and Fleet segments, along with market share expansion and robust end-market activity, are expected to support growth. The Zacks Consensus Estimate for VSEC’s third-quarter EPS is pegged at 76 cents, representing comparable growth from the year-ago reported figure.
VSE Corporation Price and EPS Surprise
VSE Corporation price-eps-surprise | VSE Corporation Quote
KBR — a global engineering, construction and services firm — topped earnings estimates in all the trailing four quarters, with the average being 10.8%.
KBR is likely to beat expectations when it reports third-quarter 2023 results on Nov 2, before market open. This Zacks Rank #2 company has an Earnings ESP of +6.36%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The increasing global emphasis on national security, energy security, energy transition, and addressing climate change is anticipated to be evident in the company's quarterly results. The company's commitment to emission reduction, diversification of its product offerings, strategic acquisitions, and partnerships, combined with a robust backlog, are likely to have driven growth during the quarter. The Zacks Consensus Estimate for KBR’s third-quarter EPS is pegged at 73 cents, implying growth of 12.3% from the year-ago reported figure.
KBR, Inc. Price and EPS Surprise
KBR, Inc. price-eps-surprise | KBR, Inc. Quote
Construction Partners — a vertically integrated civil infrastructure company — topped the consensus mark in three of the last four quarters, with the average being 10.6%.
ROAD is likely to beat expectations when it reports fourth-quarter of fiscal 2023 results on Nov 2, before market open. This Zacks Rank #2 company has an Earnings ESP of +6.36%.
The company has been capitalizing on the advantages brought about by a substantial investment in infrastructure spanning generations, a thriving Southeastern economy, and a multitude of opportunities for both organic growth and strategic acquisitions. The Zacks Consensus Estimate for ROAD’s fiscal fourth-quarter EPS is pegged at 52 cents, implying growth of 108% from the year-ago reported figure.
Construction Partners, Inc. Price and EPS Surprise
Construction Partners, Inc. price-eps-surprise | Construction Partners, Inc. Quote
Louisiana-Pacific — a leading manufacturer of engineered wood building materials, structural framing products as well as exterior siding for use in residential, industrial and light commercial construction — topped the consensus mark in three of the last four quarters, with the average being 95.8%.
LPX is likely to beat expectations when it reports third-quarter 2023 results on Nov 1, before market open. This Zacks Rank #3 company has an Earnings ESP of +2.07%.
Challenging new and existing home-selling markets and elevated levels of channel inventory compared with the prior periods are likely to have impacted the company’s top and bottom lines in the quarter. Lower sales volumes driven by the ongoing soft housing market and inflationary environment, along with supply-chain woes, are primary concerns. The Zacks Consensus Estimate for LPX’s third-quarter EPS is pegged at $1.39, implying a decline of 19.2% from the year-ago reported figure.
Louisiana-Pacific Corporation Price and EPS Surprise
Louisiana-Pacific Corporation price-eps-surprise | Louisiana-Pacific Corporation Quote
Dycom — a specialty contracting firm operating in the telecom industry — topped the consensus mark in all the last four quarters, with the average being 147.4%.
DY is likely to beat expectations when it reports third-quarter fiscal 2024 results. This Zacks Rank #1 company has an Earnings ESP of +1.24%.
The company is experiencing significant growth in its telecommunications sector. Through the implementation of high-speed gigabit wireline networks, the integration of wireless and wireline networks, and the expansion of wireless networks, it has observed a surge in demand from its top five clients. The Zacks Consensus Estimate for DY’s fiscal third-quarter EPS is pegged at $1.77, implying growth of 4.7% from the year-ago reported figure.
Dycom Industries, Inc. Price and EPS Surprise
Dycom Industries, Inc. price-eps-surprise | Dycom Industries, Inc. Quote
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