The construction sector is likely to report mixed earnings for fourth-quarter 2024, reflecting both opportunities and challenges in the industry. On the positive side, increased infrastructure spending, strong housing demand, and reshoring initiatives have likely driven growth, providing a solid foundation for revenue gains. However, rising labor costs, persistently high interest rates, and ongoing supply chain disruptions may have weighed on profitability and tempered overall performance. As a result, while some companies may report strong results fueled by growth-focused projects, others could face margin pressures due to elevated costs and economic headwinds.

See the Zacks Earnings Calendar to stay ahead of market-making news.

With the help of the Zacks Stock Screener, we have identified five construction stocks, namely Louisiana-Pacific Corporation LPX, Trex Company, Inc. TREX, Sterling Infrastructure, Inc. STRL, PulteGroup, Inc. PHM and Weyerhaeuser Company WY, which are poised to beat the Zacks Consensus Estimate this earnings season.

Infrastructure and Industrial Construction Drive Growth

Federal spending on infrastructure projects remains a significant tailwind for the sector. The Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA) continue to support large-scale projects, particularly in transportation, energy, and public works. Engineering and construction firms with strong government contract exposure are expected to benefit from backlog growth.

Reshoring efforts have further fueled demand for industrial construction, particularly in semiconductor manufacturing, electric vehicle production, and clean energy projects. Companies involved in large-scale industrial development are poised to see revenue gains from projects funded by the CHIPS Act. These trends suggest that nonresidential construction should remain strong, even as some commercial real estate segments face headwinds.

Overall, the nonresidential sector is strengthened by significant global trends, including infrastructure modernization, energy transition, national security enhancements, and supply-chain investments. Further support comes from increased investments in telecommunications networks, particularly in 5G technologies, as well as initiatives focused on environmental remediation and climate resilience. However, the sector continues to face challenges, such as fluctuations in capital spending and volatility in commodity prices.

Residential Construction Poses Concern Amid Interest Rate Pressures

Despite mortgage rates hovering near 7%, homebuilders have managed to sustain demand through price incentives, rate buydowns, and strong order backlogs. The lack of existing home inventory has kept new home sales elevated, providing support for residential construction. However, margin compression remains a concern. Incentives used to attract buyers have cut into profits, and higher land development costs continue to be a challenge.

Persistent Labor and Material Costs Create Challenges

One of the biggest challenges facing the construction sector is the ongoing labor shortage. Skilled workers remain in short supply, leading to higher wages and potential project delays. Companies with heavy reliance on unionized labor or subcontractors may face higher operating costs, particularly in large-scale commercial and infrastructure projects. Material costs remain another area of concern, despite some improvement in supply chain conditions compared to 2022. Prices for cement, steel, and electrical components remain volatile, which could impact profit margins.

Q4 Expectations

The overall estimate picture is a mixed one for the broader Zacks Construction sector amid challenges associated with the soft residential market, weather-related headwinds, high expenses and labor constraints from the year-ago perspective. Per the latest Earnings Trends report, construction sector earnings are expected to decline 5% for the fourth quarter. This indicates a further decline from the third quarter of 2024 decline of 1.8%. Revenues are projected to inch up 0.4%, suggesting a deceleration from 2.3% growth registered in the prior quarter.

Per the latest report, the fourth-quarter earnings season has so far seen releases from approximately 14.9% of the construction sector’s market capitalization on the S&P 500 Index. Of them, the sector’s total earnings are down 19.7% from the year-ago period on 6.1% lower revenues, with each 50% beating earnings per share (EPS) and revenue estimates.

Which Are the Right Picks?

Given the headwinds, it is not easy to find stocks with the potential to trump earnings estimates. Here, the Zacks methodology comes in handy as it helps identify stocks that not only boast solid fundamentals but are also poised to beat estimates this earnings season.

One can narrow down the list with the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP. You can uncover the best stocks to buy or sell before they report with our Earnings ESP Filter.

Our research shows that for stocks with this combination, the chances of delivering earnings beat are as high as 70%.

Earnings ESP is our proprietary methodology for determining stocks that have the best chances of coming up with an earnings beat in their upcoming earnings announcement. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

Winning Stocks

For investors willing to adopt this strategy, we have highlighted five construction stocks that may stand out this earnings season.

Louisiana-Pacific — a building solutions provider — topped earnings estimates in all the trailing four quarters, with the average being 30.7%.

LPX is likely to beat expectations when it reports fourth-quarter 2024 results on Feb. 19, before market open. This Zacks Rank #2 company has an Earnings ESP of +11.79%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for LPX’s fourth-quarter EPS is pegged at 74 cents, representing growth of 4.2% from the year-ago reported figure.

Trex — a manufacturer and distributer of composite decking, railing, and outdoor living products and accessories — topped earnings estimates in all the trailing four quarters, with the average being 9%.

TREX is likely to beat expectations when it reports fourth-quarter 2024 results. This Zacks Rank #1 company has an Earnings ESP of +10.53%.

The Zacks Consensus Estimate for TREX’s fourth-quarter EPS is pegged at 5 cents, representing a decline of 75% from the year-ago reported figure.

Sterling — a market-leading infrastructure services provider of E-infrastructure Solutions, Building Solutions, and Transportation Solutions — topped earnings estimates in all the trailing four quarters, with the average being 21.5%.

STRL is likely to beat expectations when it reports fourth-quarter 2024 results. This Zacks Rank #3 company has an Earnings ESP of +2.99%.

The Zacks Consensus Estimate for STRL’s fourth-quarter EPS is pegged at $1.34, representing growth of 3.1% from the year-ago reported figure.

PulteGroup — mainly engages in the homebuilding business — topped earnings estimates in all the trailing four quarters, with the average being 10.9%.
 

PHM is likely to beat expectations when it reports fourth-quarter 2024 results on Jan. 30, before market open. This Zacks Rank #3 company has an Earnings ESP of +2.36%.

The Zacks Consensus Estimate for PHM’s fourth-quarter EPS is pegged at $3.21, representing a decline of 2.1% from the year-ago reported figure (read more: PulteGroup to Report Q4 Earnings: What's in Store for the Stock?).
 

Weyerhaeuser — one of the world's largest private owners of timberlands — topped earnings estimates in three of the trailing four quarters and missed on one occasion, with the average being 41.6%.

WY is likely to beat expectations when it reports fourth-quarter 2024 results on Jan. 30, after market close. This Zacks Rank #1 company has an Earnings ESP of +1.01%.

The Zacks Consensus Estimate for WY’s fourth-quarter EPS is pegged at 7 cents, representing a decline of 56.3% from the year-ago reported figure (read more: Weyerhaeuser to Report Q4 Earnings: What's in Store for the Stock?)

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