After a burst of third-quarter earnings releases by a number of construction companies (mostly from residential sector), including KB Home KBH, Lennar Corp. LEN, NVR, Inc. NVR, PulteGroup, Inc. PHM and United Rentals, Inc. URI, a few construction companies are gearing up to report their quarterly numbers on Oct 25.
Construction companies are expected to come up with a strong third-quarter 2019 show, attributable to growth in public sector construction activity, mainly in large transportation projects and contract work for highways. Also, strong pricing is expected to reflect in the third-quarter financials. Again, increasing defense spending in major economies like the United States, elevated public investment in worldwide transportation, water infrastructure and utility plant, as well as business prospects in the healthcare market might have led to improvement for the construction companies in the quarter.
Meanwhile, the housing market, which has borne the brunt of rising interests/mortgage rates and higher raw material costs since the end of 2017, has regained its momentum on a declining mortgage rates trend. The industry players are expected to have gained from solid household formation attributable to declining mortgage/interest rates, steady economic growth and favorable demographics.
In a nutshell, the housing market rebound and Trump’s impetus to enhance the country’s infrastructure by upgrading highways, railroads, bridges and broadband are expected to have benefited the players’ bottom lines in the quarter under review.
On the flip side, higher land, labor and raw material costs, and rising transportation expenses, might have weighed on bottom-line growth.
Strong Construction Activity Leads to Bullish Expectations
Overall, third-quarter earnings growth is expected to be in negative territory for 10 of the 16 Zacks sectors. That said, Construction along with Medical, Finance, Utilities, Transportation and Business Services sectors are likely to register positive growth in the quarter.
Per the Earnings Preview dated Oct 18, the Construction sector is anticipated to register earnings growth of 2.6% on 1.1% revenue growth from third-quarter 2018.
Construction Stocks Reporting on Oct 25
Let's see how things are shaping up for three companies from Construction that are set to report third-quarter 2019 numbers tomorrow.
Our research shows that when a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) stock is combined with a positive Earnings ESP, the chance of beating earnings estimates is high. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Weyerhaeuser Company WY is scheduled to report quarterly results before the opening bell. In the last reported quarter, the company’s earnings topped the Zacks Consensus Estimate by 60% but revenues missed the same by 2.1%. In fact, Weyerhaeuser surpassed or met the Zacks Consensus Estimate in two of the trailing four quarters, delivering an average positive surprise of 5.7%, as shown in the chart below:
Weyerhaeuser Company Price and EPS Surprise
Weyerhaeuser Company price-eps-surprise | Weyerhaeuser Company Quote
However, we cannot conclusively predict a beat for the company in the third quarter as it has an Earnings ESP of -1.72% and a Zacks Rank #3.
For the quarter to be reported, the Zacks Consensus Estimate is currently pegged at 10 cents, showing a downward trend over the past 30 days. This also reflects a decrease of 64.3% from the year-ago earnings of 28 cents per share. Revenues are expected to be $1.67 million, down 12.8% year over year (Read More: Weyerhaeuser to Report Q3 Earnings: What's in Store).
Gibraltar Industries, Inc. ROCK is scheduled to report third-quarter 2019 numbers before the opening bell. The company reported better-than-expected results in two of the last four quarters, with the average positive earnings surprise being 0.01%, as shown in the chart below:
Gibraltar Industries, Inc. Price and EPS Surprise
Gibraltar Industries, Inc. price-eps-surprise | Gibraltar Industries, Inc. Quote
We cannot conclusively predict a beat for the company in the third quarter as it has an Earnings ESP of 0.00% and a Zacks Rank #2.
For the quarter to be reported, the Zacks Consensus Estimate is currently pegged at 87 cents per share, remained unchanged over the past 30 days. That said, the estimate reflects 22.5% year-over-year growth. Total revenues are expected to be $289.3 million, reflecting 3.3% year over year growth.
The company’s solid backlog, four-pillar value creation strategy, well-planned acquisitions and improving operational excellence are expected to have benefited the company in the third quarter. Stronger demand for innovative products, coupled with growth in Residential Products and Renewable Energy & Conservation businesses are likely to have strongly contributed to revenue growth.
Gibraltar anticipates third-quarter revenues in the range of $288-$298 million, suggesting growth from $280.1 million reported in the prior-year period. Adjusted earnings are projected within 84-91 cents per share, indicating a significant improvement from 71 cents reported in the year-ago quarter.
Granite Construction Incorporated GVA is scheduled to report third-quarter results before the market opens. In the last reported quarter, the company incurred a loss of $1.83 per share, narrower than the Zacks Consensus Estimate of $2.04 by 10.3%. In fact, its earnings missed estimates in two of the past four quarters, with the average negative surprise being 46.9%, as shown in the chart below:
Granite Construction Incorporated Price and EPS Surprise
Granite Construction Incorporated price-eps-surprise | Granite Construction Incorporated Quote
Meanwhile, our proven model predicts an earnings beat for Granite Construction this time around, as it has an Earnings ESP of +8.77% and a Zacks Rank #3.
For the quarter to be reported, the Zacks Consensus Estimate is currently pegged at $1.41, trending upward over the past 30 days. The earnings estimate reflects a decrease of 0.7% from the year-ago earnings of $1.42 per share. Revenues are expected to be $1.13 billion, up 7.2% year over year.
A strong underlying performance of its overall portfolio — with construction, materials and water businesses — is expected to benefit the company’s third-quarter numbers.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
United Rentals, Inc. (URI) : Free Stock Analysis Report
Weyerhaeuser Company (WY) : Free Stock Analysis Report
Granite Construction Incorporated (GVA) : Free Stock Analysis Report
Lennar Corporation (LEN) : Free Stock Analysis Report
NVR, Inc. (NVR) : Free Stock Analysis Report
PulteGroup, Inc. (PHM) : Free Stock Analysis Report
KB Home (KBH) : Free Stock Analysis Report
Gibraltar Industries, Inc. (ROCK) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research