What's in Store for Material ETFs in Q1 Earnings?

The materials sector has been one of the top performing sectors of this year thanks to rebounding commodity prices, positive developments in China, pick-up in global manufacturing activities and improving global trends. Additionally, Trump’s pro-growth policies to revive U.S. manufacturing and rehabilitate the country’s aging infrastructure added to its strength.

The President-elect has proposed to spend a trillion dollars on infrastructure by rebuilding highways, bridges, hospitals and other infrastructure projects over 10 years (read: Don't Let Trump ETFs & Stocks Fool You).

As a result, Materials Select Sector SPDR XLB, Vanguard Materials ETF VAW, iShares U.S. Basic Materials ETF IYM, and Fidelity MSCI Materials Index ETF FMAT have gained in mid-single digits so far this year. Will this trend continue as Q1 earnings unfold?

Let’s delve into the earnings picture of some of the largest companies in the material space that would drive the performance of these funds in the coming week. These include Dow Chemical DOW, DuPont DD, Praxair PX, Air Products & Chemicals APD and LyondellBasell Industries LYB that dominate these fund’s portfolio. These stocks collectively account for the maximum portion, with 38.8% share in XLB, 38.6% in IYM, 28.0% in FMAT and 25.3% in VAW.

According to the our surprise prediction methodology, stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP are likely to beat earnings estimates, while a Zacks Rank #4 or #5 (Sell rated) are best avoided.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter

Inside Our Surprise Prediction of These Stocks

Dow Chemical has a Zacks Rank #3 and an Earnings ESP of -4.04%, indicating a less chance of beating estimates this quarter. The stock saw positive earnings estimate revision of six cents over the past 90 days for the to-be-reported quarter and delivered positive earnings surprise of 11.31% on average over the last four quarters. Though the stock has a solid Value Style Score of B, its Growth and Momentum Style Score of C and F, respectively, are unimpressive. Dow Chemical is scheduled to report its earnings on April 27 before the opening bell.

DuPont is expected to report its results on April 25 before market open. It has a Zacks Rank #2 and an Earnings ESP of 0.00%, which makes surprise prediction difficult. The stock saw no earnings estimate revision for the to-be-reported quarter over the past 60 days. However, it delivered positive earnings surprises in the last four quarters, with an average beat of 29.9%. The stock has an unfavorable Value and Momentum Style Score of C each, while a Growth Style Score of A looks solid (see: all the Material ETFs here).

Praxair has a Zacks Rank #2 and an Earnings ESP of 0.00%, which makes surprise prediction difficult. The earnings surprise track over the past four quarters is robust with an average positive surprise of 1.32%. However, the stock witnessed negative earnings estimate revision of 11 cents over the past 90 days for the to-be-reported quarter. Additionally, the stock has an unfavorable Value, Growth and Momentum Style Score of C each. Praxair will report its earnings on April 27 before the market opens.

Air Products & Chemicals has a Zacks Rank #2 and an Earnings ESP of +1.45%, pointing at a higher chance of beating estimates this quarter. The company delivered positive earnings surprises in the last four quarters, with an average beat of 0.49%. However, the stock saw negative earnings estimate revision of 17 cents over the past three months for the to-be-reported quarter. Though the stock has a solid Growth and Momentum Style Score of B each, the Value Style Score of C is unimpressive. The company is schedule to report on January 27 before market open (read: 4 Top Sector ETFs & Stocks to Outperform in Q1 Earnings).

LyondellBasell is expected to release its earnings on April 28 before the opening bell. It has a Zacks Rank #3 and an Earnings ESP of -0.43%, indicating a lower chance of beating estimates. It saw solid earnings estimate revision of 23 cents over the past three months for the to-be-reported quarter and delivered positive earnings surprises in the last four quarters, with an average beat of 7.49%. Though it has a solid Value and Momentum Style Score of A each, the Growth Style Score of C is uninspiring.

Summing Up

While some of the major players seem to have less chances of beating earnings estimates, the sector is expected to post double-digit earnings growth on 2.1% revenue growth as per the latest Earnings Outlook. Additionally, the sector has a solid Zacks Rank in the top 19%, suggesting some outperformance. As such, material ETFs are poised to fare well in the coming weeks. Further, IYM has a Zacks Rank #1 while VAW and XLB have Zacks Rank #2. Meanwhile, FMAT has a Zacks Rank #3.

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E.I. du Pont de Nemours and Company (DD): Free Stock Analysis Report
 
Dow Chemical Company (The) (DOW): Free Stock Analysis Report
 
Praxair, Inc. (PX): Free Stock Analysis Report
 
Air Products and Chemicals, Inc. (APD): Free Stock Analysis Report
 
LyondellBasell Industries NV (LYB): Free Stock Analysis Report
 
SPDR-MATLS SELS (XLB): ETF Research Reports
 
FID-MATRLS (FMAT): ETF Research Reports
 
VIPERS-MATERIAL (VAW): ETF Research Reports
 
ISHARS-US BA MA (IYM): ETF Research Reports
 
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