These 2 Construction Stocks Could Beat Earnings: Why They Should Be on Your Radar

Zacks Investment Research introduces its Earnings ESP (Expected Surprise Prediction) tool, which combines the Most Accurate Estimate with the Zacks Consensus Estimate and Zacks Rank to identify stocks likely to beat earnings. Historically, stocks with a positive ESP and a Zacks Rank #3 (Hold) or better have reported positive earnings surprises 70% of the time, yielding an average of 28.3% annual returns over a 10-year backtest. Current examples highlighted include Comfort Systems (FIX) with an 8.92% ESP and Zacks Rank #1 (Strong Buy), and Lennar (LEN) with a 2.38% ESP and Zacks Rank #3 (Hold), both indicating a high probability of exceeding analyst expectations in their upcoming reports.

Analysis

A quantitative screening model, the Zacks Earnings ESP, identifies two construction sector stocks, Comfort Systems (FIX) and Lennar (LEN), as having a high probability of delivering a positive earnings surprise. The model, which compares the Most Accurate Analyst Estimate to the Zacks Consensus Estimate, has a strong historical track record; stocks with a positive ESP and a Zacks Rank of #3 (Hold) or better have reportedly produced a positive earnings surprise 70% of the time, leading to average annual returns of 28.3% in a 10-year backtest. Comfort Systems presents a particularly compelling case with a Zacks Rank of #1 (Strong Buy) and a significant Earnings ESP of +8.92%, derived from a Most Accurate Estimate of $6.47 per share versus a consensus of $5.94. Lennar also qualifies with a Zacks Rank of #3 (Hold) and a positive ESP of +2.38%, based on its Most Accurate Estimate of $2.87 exceeding the consensus of $2.80. The data suggests that recent analyst revisions for both companies are trending upwards ahead of their respective earnings reports, positioning them for potential near-term stock price appreciation should they beat expectations.

Key Decisions for Investors

• Given its #1 (Strong Buy) rating and a substantial +8.92% Earnings ESP, investors may consider establishing or adding to a tactical position in Comfort Systems (FIX) in anticipation of a significant earnings beat on its October 23 report.
• Lennar (LEN) also signals a potential earnings beat with a +2.38% ESP, but its #3 (Hold) rating suggests a more moderate outlook; this may warrant a smaller position or placing the stock on a watchlist pending further catalysts.
• Investors should recognize this is an event-driven strategy centered on earnings surprises, and while the historical 70% success rate of the model is notable, it is not a guarantee of future performance.
• Monitor the Earnings ESP for both FIX and LEN as their report dates approach, as changes in analyst estimates could alter the probability of an earnings surprise.