Masco (MAS) Q3 Earnings: Surprise In Store For The Stock?

Masco Corporation (NYSE:MAS) is set to report third-quarter 2016 results on Oct 25, before the market opens.

Last quarter, the company posted a positive earnings surprise of 28%. The company has also clocked positive earnings surprises in the past four quarters, at an average of 14.69%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Masco’s second-quarter 2016 results were marked by significant year-over-year growth in earnings, revenues and margins, as the company capitalized on the improving momentum in the repair and remodeling and new home construction industry. This trend is expected to continue in the soon-to-be reported quarter.

The company expects sales to be impacted to the tune of approximately $15 million in the third as well as fourth quarter of 2016 owing to its decision to exit select builder direct businesses and the retail kitchen countertop industry.

Meanwhile, Masco plans to invest approximately $30 million in the second half of 2016, the majority of which will be spent in the third quarter. New products under the KraftMaid and Quality brands will be launched in the second half of 2016, involving approximately $10 million of expenses. Also, approximately $10 million will be spent on advertising and displays to support new products under the Delta and Brizo brands.

Again, adverse currency translations, despite being moderate than 2015 levels, remain a headwind. About 21% of Masco’s sales are generated outside the U.S. As such the company is subjected to adverse currency translation across the globe. This may hurt Masco’s international sales in the soon-to-be reported quarter.

For the third quarter, the Zacks Consensus Estimate for earnings is pegged at 44 cents, reflecting a 28.24% year-over-year increase. Meanwhile, our estimate for revenues is $1.91 billion, implying 3.93% growth.

Earnings Whispers

Our proven model does not conclusively show that Masco is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP for Masco is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 44 cents.

Zacks Rank: Although Masco’s Zacks Rank #3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies in the construction sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat in their upcoming releases:

MasTec, Inc. (NYSE:MTZ) has an earnings ESP of +4.48% and a Zacks Rank #1. The company is expected to report third-quarter 2016 results on Nov 1.

Louisiana-Pacific Corp. (NYSE:LPX) , expected to report third-quarter 2016 results on Oct 25, has an earnings ESP of +2.5% and a Zacks Rank #1. can see the complete list of today’s Zacks #1 Rank stocks here.

DR Horton Inc. (NYSE:DHI) has an earnings ESP of +5.19% and a Zacks Rank #2. The company is slated to report third-quarter 2016 results on Nov 8.

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