4 Construction Stocks Poised For A Q4 Earnings Beat

The Q4 earnings season has so far seen releases from 25% of the construction companies. Though one might expect trade tensions and elevated input and freight costs to show on the construction sector’s results, the estimates tell a different tale.

Q4 Expectations

According to the latest Earnings Preview, earnings growth for the fourth quarter is expected to be in double digits for eight of the 16 Zacks sectors, construction being one. The sector is expected to report year-over-year earnings growth of 23.8% on 15.9% revenue growth.

Notably, earnings growth rate is expected to decelerate a bit from 33.7% growth reported in the third quarter. Investors should note that construction companies have been grappling with trade war-driven increase in raw material costs, rising freight expenses and volatility in commodity prices. Again, higher land/labor costs and rising interest/mortgage rates have added to the woes. All these factors have kept margins of many companies in the construction space under pressure, hurting bottom lines to some extent.

What’s Working in Favor?

Trump administration’s business-friendly approach, including tax cuts and higher construction spending, have kept construction activities going strong. Higher demand for state-of-the-art construction and engineering services, an impressive job market scenario and Trump’s impetus to boost infrastructure spending seem to be vital catalysts for the industry. Overall, in the first 10 months of 2018, construction spending advanced 5.1% year over year on a strong economy and low unemployment.

The headwinds confronting the sector have been countered by stronger growth for the U.S. economy, leniency in bank lending standards, solid market fundamentals for commercial real estate, and increased federal funding for school construction and public works.

Meanwhile, mortgage rates were steady for the third consecutive week, in the week ending Jan 24. The 30-year fixed rate averaged 4.45%, at the lowest level in nine months after six weeks of decline, according to Freddie Mac’s weekly Primary Mortgage Market Survey. The decline in rates might have helped boost home sales to some extent in the final months of 2018.

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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this ...

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