TREX Strengthens Partnership With Boise Cascade, Expands Reach

For those looking to find strong Construction stocks, it is prudent to search for companies in the group that are outperforming their peers. Is Comfort Systems (FIX) one of those stocks right now? Let's take a closer look at the stock's year-to-date performance to find out.

Comfort Systems is one of 88 companies in the Construction group. The Construction group currently sits at #8 within the Zacks Sector Rank. The Zacks Sector Rank includes 16 different groups and is listed in order from best to worst in terms of the average Zacks Rank of the individual companies within each of these sectors.

The Zacks Rank is a proven model that highlights a variety of stocks with the right characteristics to outperform the market over the next one to three months. The system emphasizes earnings estimate revisions and favors companies with improving earnings outlooks. Comfort Systems is currently sporting a Zacks Rank of #1 (Strong Buy).

Within the past quarter, the Zacks Consensus Estimate for FIX's full-year earnings has moved 0.7% higher. This is a sign of improving analyst sentiment and a positive earnings outlook trend.

According to our latest data, FIX has moved about 117% on a year-to-date basis. At the same time, Construction stocks have gained an average of 25.7%. This means that Comfort Systems is performing better than its sector in terms of year-to-date returns.

Sterling Infrastructure (STRL) is another Construction stock that has outperformed the sector so far this year. Since the beginning of the year, the stock has returned 112.3%.

In Sterling Infrastructure's case, the consensus EPS estimate for the current year increased 5.4% over the past three months. The stock currently has a Zacks Rank #1 (Strong Buy).

Breaking things down more, Comfort Systems is a member of the Building Products - Air Conditioner and Heating industry, which includes 5 individual companies and currently sits at #32 in the Zacks Industry Rank. Stocks in this group have gained about 56.1% so far this year, so FIX is performing better this group in terms of year-to-date returns.

On the other hand, Sterling Infrastructure belongs to the Engineering - R and D Services industry. This 18-stock industry is currently ranked #154. The industry has moved +16% year to date.

Comfort Systems and Sterling Infrastructure could continue their solid performance, so investors interested in Construction stocks should continue to pay close attention to these stocks.

Zacks Investment Research

Sterling Infrastructure (STRL) has recently been on Zacks.com's list of the most searched stocks. Therefore, you might want to consider some of the key factors that could influence the stock's performance in the near future.

Over the past month, shares of this civil construction company have returned +12.3%, compared to the Zacks S&P 500 composite's +3.1% change. During this period, the Zacks Engineering - R and D Services industry, which Sterling Infrastructure falls in, has gained 5.9%. The key question now is: What could be the stock's future direction?

While media releases or rumors about a substantial change in a company's business prospects usually make its stock 'trending' and lead to an immediate price change, there are always some fundamental facts that eventually dominate the buy-and-hold decision-making.

Earnings Estimate Revisions

Here at Zacks, we prioritize appraising the change in the projection of a company's future earnings over anything else. That's because we believe the present value of its future stream of earnings is what determines the fair value for its stock.

Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings estimates to take the latest business trends into account. When earnings estimates for a company go up, the fair value for its stock goes up as well. And when a stock's fair value is higher than its current market price, investors tend to buy the stock, resulting in its price moving upward. Because of this, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

Sterling Infrastructure is expected to post earnings of $1.32 per share for the current quarter, representing a year-over-year change of +1.5%. Over the last 30 days, the Zacks Consensus Estimate has changed -2.2%.

For the current fiscal year, the consensus earnings estimate of $5.96 points to a change of +33.3% from the prior year. Over the last 30 days, this estimate has changed +5.4%.

For the next fiscal year, the consensus earnings estimate of $6.45 indicates a change of +8.1% from what Sterling Infrastructure is expected to report a year ago. Over the past month, the estimate has changed +7.1%.

Having a strong externally audited track record, our proprietary stock rating tool, the Zacks Rank, offers a more conclusive picture of a stock's price direction in the near term, since it effectively harnesses the power of earnings estimate revisions. Due to the size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, Sterling Infrastructure is rated Zacks Rank #1 (Strong Buy).

The chart below shows the evolution of the company's forward 12-month consensus EPS estimate:

12 Month EPS

Revenue Growth Forecast

Even though a company's earnings growth is arguably the best indicator of its financial health, nothing much happens if it cannot raise its revenues. It's almost impossible for a company to grow its earnings without growing its revenue for long periods. Therefore, knowing a company's potential revenue growth is crucial.

In the case of Sterling Infrastructure, the consensus sales estimate of $533.2 million for the current quarter points to a year-over-year change of +9.7%. The $2.15 billion and $2.31 billion estimates for the current and next fiscal years indicate changes of +9% and +7.3%, respectively.

Last Reported Results and Surprise History

Sterling Infrastructure reported revenues of $593.74 million in the last reported quarter, representing a year-over-year change of +6%. EPS of $1.97 for the same period compares with $1.26 a year ago.

Compared to the Zacks Consensus Estimate of $599.9 million, the reported revenues represent a surprise of -1.03%. The EPS surprise was +17.26%.

The company beat consensus EPS estimates in each of the trailing four quarters. The company topped consensus revenue estimates just once over this period.

Valuation

Without considering a stock's valuation, no investment decision can be efficient. In predicting a stock's future price performance, it's crucial to determine whether its current price correctly reflects the intrinsic value of the underlying business and the company's growth prospects.

Comparing the current value of a company's valuation multiples, such as its price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), to its own historical values helps ascertain whether its stock is fairly valued, overvalued, or undervalued, whereas comparing the company relative to its peers on these parameters gives a good sense of how reasonable its stock price is.

The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to both traditional and unconventional valuation metrics to grade stocks from A to F (an An is better than a B; a B is better than a C; and so on), is pretty helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.

Sterling Infrastructure is graded D on this front, indicating that it is trading at a premium to its peers. Click here to see the values of some of the valuation metrics that have driven this grade.

Bottom Line

The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about Sterling Infrastructure. However, its Zacks Rank #1 does suggest that it may outperform the broader market in the near term.

Zacks Investment Research

Johnson Controls International plc JCI has upgraded the Artificial Intelligence (AI) capabilities in its OpenBlue Enterprise Manager suite (part of the OpenBlue digital ecosystem). These updates feature the first generative AI applications for customers, improved building controls and a better user experience.

The OpenBlue digital ecosystem is a suite of interconnected smart building solutions to improve the performance, efficiency and sustainability of buildings. It leverages cutting-edge technologies such as Internet of Things (IoT), AI, data analytics and cloud computing to optimize building operations.

The new AI features include energy-saving tools, personalized user experiences, enhanced data insights for managing building visitors, improved monitoring of indoor air quality and automatic adjustments based on system issues. It enhances data insights, leveraging the benefits customers are already experiencing with OpenBlue.

With the help of OpenBlue Enterprise Manager, equipment upgrades and proactive services, businesses are saving a maximum of 30% on energy and 20% on maintenance and optimizing space by 10%. This improves efficiency, reduces costs and helps both the environment and the bottom line. The system now supports more than 130 types of energy-saving projects and has automated building control features.

JCI’s Zacks Rank

JCI currently carries a Zacks Rank #4 (Sell). In the past year, the company’s shares have gained 65.3% compared with the industry’s 29.8% growth.

The company is experiencing weakness across its Building Solutions Asia Pacific segment. Also, the escalating cost of sales poses a threat to Johnson Controls’ bottom line. Increased material cost inflation is pushing up its cost of sales.

Stocks to Consider

Some better-ranked companies are discussed below.

Louisiana-Pacific Corporation LPX currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

LPX delivered a trailing four-quarter average earnings surprise of 30.7%. In the past 60 days, the Zacks Consensus Estimate for Louisiana-Pacific’s 2024 earnings has increased 9.9%.

PotlatchDeltic Corporation PCH presently carries a Zacks Rank #2 (Buy). The company delivered a trailing four-quarter average earnings surprise of 50%.

In the past 60 days, the consensus estimate for PCH’s 2024 earnings has increased more than 100%.

RBC Bearings Incorporated RBC currently carries a Zacks Rank of 2. RBC delivered a trailing four-quarter average earnings surprise of 2.5%.

In the past 60 days, the consensus estimate for RBC Bearings’ fiscal 2025 earnings has increased 2.3%.

Zacks Investment Research

The SPDR Portfolio S&P 400 Mid Cap ETF (SPMD) was launched on 11/08/2005, and is a passively managed exchange traded fund designed to offer broad exposure to the Mid Cap Blend segment of the US equity market.

The fund is sponsored by State Street Global Advisors. It has amassed assets over $12.27 billion, making it one of the larger ETFs attempting to match the Mid Cap Blend segment of the US equity market.

Why Mid Cap Blend

Compared to large and small cap companies, mid cap businesses tend to have higher growth prospects and are less volatile, respectively, with market capitalization between $2 billion and $10 billion. Thus, companies that fall under this category provide a stable and growth-heavy investment.

Typically holding a combination of both growth and value stocks, blend ETFs also demonstrate qualities seen in value and growth investments.

Costs

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

Annual operating expenses for this ETF are 0.03%, making it the least expensive products in the space.

It has a 12-month trailing dividend yield of 1.32%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation to the Industrials sector--about 22.80% of the portfolio. Financials and Consumer Discretionary round out the top three.

Looking at individual holdings, Illumina Inc (ILMN) accounts for about 0.77% of total assets, followed by Carlisle Cos Inc (CSL) and Emcor Group Inc (EME).

The top 10 holdings account for about 6.49% of total assets under management.

Performance and Risk

SPMD seeks to match the performance of the S&P 1000 Index before fees and expenses. The S&P MidCap 400 Index combines the S&P MidCap 400 and the S&P SmallCap 600 to form an investable benchmark for the mid to small cap segment of the U.S. equity market.

The ETF has gained about 19% so far this year and is up roughly 36.12% in the last one year (as of 11/14/2024). In the past 52-week period, it has traded between $44.13 and $58.34.

The ETF has a beta of 1.10 and standard deviation of 20.23% for the trailing three-year period. With about 403 holdings, it effectively diversifies company-specific risk.

Alternatives

SPDR Portfolio S&P 400 Mid Cap ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, SPMD is a sufficient option for those seeking exposure to the Style Box - Mid Cap Blend area of the market. Investors might also want to consider some other ETF options in the space.

The Vanguard Mid-Cap ETF (VO) and the iShares Core S&P Mid-Cap ETF (IJH) track a similar index. While Vanguard Mid-Cap ETF has $74.22 billion in assets, iShares Core S&P Mid-Cap ETF has $97.33 billion. VO has an expense ratio of 0.04% and IJH charges 0.05%.

Bottom-Line

While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

Zacks Investment Research

An ill-informed investor can lose cash if he wagers on a stock only based on the numbers flashing on a real-time stock screen. A critical analysis of a company’s financial background is a must for a better investment decision, especially at a time when the stock market is juggling myriad issues.

Often, investors evaluate a company’s performance by simply looking at its sales and earnings, which sometimes do not reveal the real picture. To be more precise, they do not tell whether a company’s fundamentals are sound enough to meet its financial obligations. Here, the coverage ratio comes into play — the higher the metric, the more efficient an enterprise will be in meeting its financial obligations.

Sterling Infrastructure, Inc. STRL, Leidos Holdings, Inc. LDOS, Tenet Healthcare Corporation THC and Amazon.com, Inc. AMZN boast an impressive interest coverage ratio.

Why Interest Coverage Ratio?

The interest coverage ratio is used to determine how effectively a company can pay interest charges on its debt.

Debt, which is crucial to financing operations for the majority of companies, comes at a cost called interest. Interest expense has a direct bearing on the profitability of a company. The company’s creditworthiness depends on how effectively it meets its interest obligations. Therefore, interest coverage ratio is one of the important criteria to factor in before making any investment decision.

Interest Coverage Ratio = Earnings before Interest & Taxes (EBIT) divided by Interest Expense.

Interest coverage ratio suggests how many times the interest could be paid from earnings and gauges the margin of safety a firm has for paying interest.

An interest coverage ratio lower than 1 suggests that the company is unable to fulfill its interest obligations and could default on repaying debt. A company capable of generating earnings well above its interest expense can withstand financial hardships. One should also track the company’s past performance to determine whether the interest coverage ratio has improved or worsened over a period of time.

The Winning Strategy

Apart from having an interest coverage ratio that is more than the industry average, adding a favorable Zacks Rank and a VGM Score of A or B to your search criteria should lead to better results.

Interest coverage ratio greater than X-Industry Median

Price greater than or equal to 5: The stocks must all be trading at a minimum of $5 or higher.

5-Year Historical EPS Growth (%) greater than X-Industry Median: Stocks with a strong EPS growth history.

Projected EPS Growth (%) greater than X-Industry Median: This is the projected EPS growth over the next three to five years. This shows that the stock has near-term earnings growth potential.

Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that the stock is easily tradable.

Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.

VGM Score of less than or equal to B: Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.

Here are four of the 18 stocks that qualified the screening:

Sterling Infrastructure, which is engaged in e-infrastructure, transportation and building solutions, sports a Zacks Rank #1 and has a VGM Score of B. Sterling Infrastructure has a trailing four-quarter earnings surprise of 21.5%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Sterling Infrastructure’s current financial year sales and EPS suggests growth of 9% and 33.3%, respectively, from a year ago. The stock has surged 185.9% in the past year.

Leidos Holdings, which provides services and solutions in the defense, intelligence, civil and health markets in the United States and internationally, has a VGM Score of A and carries a Zacks Rank #1.

The Zacks Consensus Estimate for Leidos Holdings’ current financial year sales and EPS suggests growth of 6% and 33.6%, respectively, from a year ago. Leidos Holdings has a trailing four-quarter earnings surprise of 29.9%, on average. The stock has risen 91.8% in the past year.

Tenet Healthcare, a diversified healthcare services company in the United States, sports a Zacks Rank #1 and has a VGM Score of A.

The Zacks Consensus Estimate for Tenet Healthcare’s current financial year sales and EPS suggests growth of 1% and 63.2%, respectively, from a year ago. THC has a trailing four-quarter earnings surprise of 59.9%, on average. The stock has skyrocketed 180.9% in the past year.

Amazon, a multinational technology company focusing on e-commerce, cloud computing, online advertising, digital streaming and artificial intelligence, has a Zacks Rank #2 and a VGM Score of B.

The Zacks Consensus Estimate for Amazon’s current financial year sales and EPS suggests growth of 10.8% and 78.3%, respectively, from the year-ago period’s levels. AMZN has a trailing four-quarter earnings surprise of 25.9%, on average. The stock has surged 43.3% in the past year.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

Click here to sign up for a free trial to the Research Wizard today.

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 material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.

Zacks Investment Research

For Immediate Release

Chicago, IL – November 12, 2024 – Today, Zacks Equity Research like Sterling Infrastructure STRL.

Time to Buy Sterling Infrastructures Stock for Higher Highs?

Amid a broader post-election rally, quite a few stocks have hit fresh 52-week highs with Sterling Infrastructure being one that stands out in particular.

Soaring over +120% year to date, STRL printed a fresh peak of $201 a share in Monday’s trading session and investors may be wondering if higher highs are ahead.

Sterling’s Strong Q3 Results

Mission-critical projects including data center projects have catapulted Sterling’s growth. Reporting its Q3 results last Wednesday, Sterling achieved 89% operating income growth in its E-Infrastructure solutions segment. Furthermore, total net income increased 56% to $61.3 million or $1.97 per share compared to EPS of $1.26 in the comparative quarter (also a 56% increase).

Surpassing Q3 EPS estimates of $1.68, Sterling has exceeded earnings expectations for seven consecutive quarters posting an average EPS surprise of 21.5% in its last four quarterly reports. This was despite Q3 sales of $593.74 million missing estimates of $599.9 million although this was a 6% increase from $560.35 million a year ago.

Other Financial Highlights

Other financial highlights during Q3 included Sterling’s EBITDA expanding 42% to $100.8 million and a record gross margin of 21.9% compared to 16.4% in the prior-year quarter. Meanwhile, Sterling’s cash & equivalents climbed 42% to $648.12 million versus $409.39 million at the end of Q3 2023.

Monitoring Sterling’s Valuation (P/E)

With Sterling’s growth starting to separate the company from many of its competitors, STRL trades at 32.4X forward earnings which isn’t a stretched premium to its Zacks Engineering-R and D Services Industry average of 25.8X.

Rising EPS Estimates

Most intriguing is that earnings estimate revisions for fiscal 2024 and FY25 are up 5% and 1% in the last week respectively. Based on Zacks estimates, Sterling is now expected to post 33% EPS growth this year with its bottom line projected to expand another 2% in FY25 to $6.11 per share.

Bottom Line

Starting to benefit from a positive trend of earnings estimate revisions, Sterling Infrastructure's stock sports a Zacks Rank #1 (Strong Buy).

As one of the hottest stocks in recent years it would be no surprise if STRL shares continued to rise and make new highs. To that point, Sterling has a strong backlog of over $2 billion and continues to move toward large, multi-phase infrastructure projects.

Why Haven't You Looked at Zacks' Top Stocks?

Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.

Today you can access their live picks without cost or obligation.

See Stocks Free >>

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Media Contact

Zacks Investment Research

800-767-3771 ext. 9339

support@zacks.com

https://www.zacks.com

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Zacks Investment Research