5 Construction Stocks Set to Carve a Beat in Q4 Earnings

Core Insights - The construction sector is expected to report mixed earnings for Q4 2024, driven by both growth opportunities and challenges [1] - Increased infrastructure spending and strong housing demand are positive factors, while rising labor costs and high interest rates pose risks [1] Earnings Expectations - Construction sector earnings are projected to decline by 5% in Q4 2024, following a 1.8% decline in Q3 2024 [9] - Revenues are expected to increase by 0.4%, a slowdown from the previous quarter's growth of 2.3% [9] Sector Drivers - Federal spending on infrastructure projects, supported by the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA), is a significant growth driver [3] - Reshoring efforts, particularly in semiconductor manufacturing and clean energy projects, are boosting demand for industrial construction [4] Challenges - The construction sector faces challenges from ongoing labor shortages, leading to higher wages and potential project delays [7] - Material costs remain volatile, particularly for cement, steel, and electrical components, impacting profit margins [7] Residential Construction - Despite high mortgage rates, homebuilders are maintaining demand through incentives, but margin compression is a concern due to increased costs [6] - The lack of existing home inventory is supporting new home sales, which benefits residential construction [6] Stock Picks - Five construction stocks identified as likely to beat earnings estimates include Louisiana-Pacific Corporation (LPX), Trex Company, Inc. (TREX), Sterling Infrastructure, Inc. (STRL), PulteGroup, Inc. (PHM), and Weyerhaeuser Company (WY) [2][14] - LPX is expected to report an EPS of 74 cents, reflecting a 4.2% growth year-over-year [15] - TREX's EPS estimate is 5 cents, indicating a 75% decline from the previous year [16] - STRL's EPS is projected at $1.34, showing a 3.1% increase year-over-year [18] - PHM's EPS estimate is $3.21, representing a 2.1% decline from the year-ago figure [19] - WY's EPS is expected to be 7 cents, a 56.3% decrease from the previous year [20]