Second-quarter earnings estimates are rather disappointing at a glance. The pathetic performance can be blamed solely on the global outbreak of coronavirus and the consequent lockdowns. However, defying coronavirus-induced woes, five construction stocks with a favorable Zacks Rank are set to beat earnings estimates this week.
Pathetic Second-Quarter Earnings So Far
As of Jul 24, 128 S&P 500 members reported second-quarter 2020 earnings results. Total earnings of these companies are down 41.9% from the same period last year on 7.1% lower revenues. Of the total, 74.2% surpassed EPS estimates and 64.1% outpaced revenue estimates.
Overall, second-quarter earnings for the S&P 500 Index are projected to be down 42.9% year over year on 9.6% lower revenues. Notably, first-quarter earnings of companies on the S&P 500 Index were down 13.5% on 1.4% higher revenues. (Read More: The Technology Sector Shows its Earnings Power Amid Coronavirus)
Construction Sector in Q2
The construction sector had a mixed last quarter. The sector suffered a setback in the first two months of the last quarter. However, situation took a positive turn in June as the U.S. economy started reopening from last week of May.
Strong pent-up demand and record-low mortgage rate resulted a jump in housing starts, building permits and demand for new and existing home sales. Consequently, for the construction sector, second-quarter earnings are expected to be down only 14.9% year over year on 5.1% lower revenues.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) plunged to 30 in April, the lowest since June 2012. Thereafter, it increased steadily to 37 in May and 58 in June. Notably, any reading above 50 is considered positive and signals improvement in builder’s confidence. Moreover, ramp-up in projects related to 5G — the next generation of wireless connectivity — has benefitted the heavy construction in industry.
Our Top Picks
We have narrowed down our search to five construction stocks slated to release earnings results this week. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy) and has a positive Earnings ESP. You can see the complete list of today’s Zacks #1 Rank stocks here.
Our research shows that for stocks with the combination of a Zacks Rank #3 or better and a positive Earnings ESP, the chance of an earnings beat is as high as 70%. These stocks are expected to soar after earnings release. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The chart below shows the price performance of our five picks in the last quarter.
D.R. Horton Inc. DHI operates as a homebuilding company in East, Midwest, Southeast, South Central, Southwest, and West regions in the United States. It constructs and sells single-family detached homes, and attached homes, such as town homes, duplexes and triplexes. The company has an Earnings ESP of +4.33% for the third quarter of fiscal 2020 (ended June 2020).
The Zacks Rank #1 company has an expected earnings growth rate of 14.5% for the current year (ending September 2020). The Zacks Consensus Estimate for the current year has improved by 3.6% over the last 30 days. It has a trailing four-quarter earnings surprise of 12.6%, on average. The company is set to release earnings results on Jul 28, before the opening bell.
Armstrong World Industries Inc. AWI designs, manufactures, and sells ceiling systems primarily for use in the construction and renovation of residential and commercial buildings in the United States, Canada and Latin America. It operates through Mineral Fiber and Architectural Specialties segments. The company has an Earnings ESP of +13.97%.
The Zacks Consensus Estimate for Armstrong World’s current-year earnings has improved 4.5% over the last 30 days. It has a trailing four-quarter earnings surprise of 10.2%, on average. The Zacks Rank #2 company is set to release earnings results on Jul 28, before the opening bell.
United Rentals Inc. URI operates as a rent equipment company to a diverse customer base including construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government entities in the United States and Canada. The company has an Earnings ESP of +20.51%.
The Zacks Consensus Estimate for United Rentals’ current-year earnings has improved 1.3% over the last 30 days. It has a trailing four-quarter earnings surprise of 15.5%, on average. The Zacks Rank #2 company is set to release earnings results on Jul 29, after the closing bell.
Patrick Industries Inc. PATK manufactures and distributes building products and materials for the recreational vehicle, marine, manufactured housing, and industrial markets in the United States and Canada. The company has an Earnings ESP of +12.50%.
The Zacks Consensus Estimate for Patrick Industries’ current-year earnings has improved 9.5% over the last 30 days. The Zacks Rank #1 company is set to release earnings results on Jul 30, before the opening bell.
Masco Corp. MAS designs, manufactures, and distributes home improvement and building products in North America, Europe, and internationally. It operates through two segments, Plumbing Products and Decorative Architectural Products. The company has an Earnings ESP of +0.24%.
The Zacks Rank #1 company has an expected earnings growth rate of 6.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.8% over the last 7 days. It has a trailing four-quarter earnings surprise of 8.9%, on average. The company is set to release earnings results on Jul 30, before the opening bell.
Zacks Top 10 Stocks for 2020
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Masco Corporation (MAS) : Free Stock Analysis Report
Armstrong World Industries, Inc. (AWI) : Free Stock Analysis Report
United Rentals, Inc. (URI) : Free Stock Analysis Report
D.R. Horton, Inc. (DHI) : Free Stock Analysis Report
Patrick Industries, Inc. (PATK) : Free Stock Analysis Report
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