We expect Martin Marietta Materials, Inc. (NYSE:MLM) to beat expectations when it reports first-quarter 2016 results on May 5, before the market opens.
Last quarter, the company delivered a negative earnings surprise of 14.18%.
The construction company posted negative earnings surprises in the past four quarters with the average being -16.55%.
Let’s see how things are shaping up for the upcoming announcement.
Why a Likely Positive Surprise?
Our proven model shows that Martin Marietta is likely to beat earnings because it has the right combination of two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate (38 cents per share) and the Zacks Consensus Estimate (31 cents), stands at +22.58% for Martin Marietta. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Martin Marietta has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating earnings.
Conversely, the Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement.
The combination of Martin Marietta’s Zacks Rank #3 and a positive ESP makes us confident of an earnings beat.
What's Driving the Better-than-Expected Earnings?
Martin Marietta performed below expectations in 2015 due to unfavorable weather conditions as well as the downturn in energy sector which offset the underlying momentum in the construction market.
Nevertheless, management remains quite optimistic about witnessing underlying demand growth and strong pricing in the first quarter and through the rest of the year. The company expects better volume growth in its key end markets – infrastructure and non-residential construction markets.
An improving economy and job growth are expected to boost private construction activity in the U.S. In non-residential construction market, management expects increase in shipments across both light and heavy construction sectors.
Moreover, a multi-year highway bill (five-year, $305 billion FAST Act) was enacted in Dec 2015, which increases funding certainty for state transportation programs. This, coupled with state initiatives to finance infrastructure projects, should result in increased aggregate-intensive infrastructure activity in 2016.
In addition, robust pricing gains, synergies from the Texas Industries acquisition and higher infrastructure shipment volumes should support growth in the first quarter and beyond.
However, aggregate volume trends in the Texas market due to weakness in the oil/gas industry could be somewhat slow.
Stocks to Consider
Here are some companies in the broader construction sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:
AECOM (NYSE:ACM) with an Earnings ESP of +4.17% and a Zacks Rank #3.
Vulcan Materials Co. (NYSE:VMC) , with an Earnings ESP of +16.67% and a Zacks Rank #3.
Owens Corning (NYSE:OC) , with an Earnings ESP of +2.3% and a Zacks Rank #2.
OWENS CORNING (OC): Free Stock Analysis Report
VULCAN MATLS CO (VMC): Free Stock Analysis Report
MARTIN MRT-MATL (MLM): Free Stock Analysis Report
AECOM TECH CORP (ACM): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research