Earnings Boom For Housing And Construction

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Our take on the Q1 earnings season has been justifiably positive, with the reported results handily exceeding expectations and management guidance and qualitative commentary leading to raised expectations for the current and coming periods.

We tend to dwell a lot on the Technology and Finance sectors as we look for earnings trends in the aggregate, as these two sectors combined account for so much of the total earnings pie. Over the coming four quarters, these two sectors are expected to bring in 47.4% of all S&P 500 earnings. As such, what happens in these two sectors have a big impact on the aggregate growth picture.

We have been showing in this space how strong the earnings performance in the Finance and Technology sectors has been. The goal in this piece is to share with you the very impressive Q1 results and rising estimates outlook for the economically sensitive sectors like Basic Materials, Industrial Products, Construction, Autos and others.

The earnings outlook for all of these sectors is extremely good. We will feature these sectors individually in this space in the coming weeks, starting with the Construction sector today.

The Zacks Construction sector has been on an impressive growth trajectory since the pre-Covid period, with the pandemic and favorable interest rate backdrop adding to the space’s momentum. The space is on track for record earnings and revenues, with the aggregate totals far exceeding what we saw at the top of the housing boom.

The chart below shows the Zacks Construction sector’s earnings on an annual basis, with 2021 on track to reach $21.5 billion.

You can see here the sector’s 2021 profitability is more twice what the sector earned at the peak of the housing bubble in 2005.

You would be 100% correct in expecting the constituent stocks in the Zacks Construction sector, which have been listed at the bottom of the above chart and includes operators like D.R. Horton (DHI - Free Report), Lennar Corp. (LEN - Free Report), Quanta Services (PWR - Free Report) and others, have been literally on fire, as you can see in the one-year performance comparison of the sector with the S&P 500 index.

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