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.
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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.
