The spring season is when the housing market starts booming. Strong housing fundamentals has led to a recovering construction sector. Rising wages, a favorable job outlook and an improving economy are leading to further strengthening, too.
New home sales jumped in April, according to housing data released last Tuesday.
New single-family home sales rose 16.6% on the month for the second month in a row in April. Housing starts also rose by 6.6% in April, with future construction rising 3.6% on the month. Construction stocks will be a major beneficiary of a strong housing market, and two stocks to pay close attention to on the news are:
1. Installed Building Products, Inc. (IBP)
IBP reported strong Q1 growth, beating on both EPS and revenue. The company recently released their financials, which showed a positive uptick in gross profit and revenue, while cost of revenue remained flat from December’s numbers.
Net revenue increased 47.5% on the quarter to $191.7 million. Operating income increased 254% to $10.6 million.
2. Comfort Systems USA, Inc. (FIX)
Comfort Systems offers HVAC installation, replacement and repair services. The company had a strong first quarter of the year and recently breached its 50-day moving average. The company posted gross margin increases of 19.69% on the quarter with an EBITDA up to 7.12% from 4.5%.
Operating cash flow on the year is up 129.99%.
Net income on the quarter was down nearly 25% from the previous quarter, but a strong housing market is expected to boost the company’s stock. The first quarter of the year is routinely slow for the housing market and companies in the housing sector.
The broader construction sector performed better than expected as a whole in the first quarter of the year. A housing market uptick will further boost the sector in Q2 and Q3 2016.
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