The Zacks Building Products - Miscellaneous industry continues to navigate challenges stemming from a weak real estate market and inflation-driven consumer uncertainty. The real estate market remained weak due to high mortgage rates, limited housing inventory, and affordability challenges, which deterred buyers and suppressed demand.
Nonetheless, increased government infrastructure spending is bolstering companies in the industry. Although potential challenges like macroeconomic uncertainties, new product investments and rising raw material costs could squeeze margins, firms such as Owens Corning OC, Armstrong World Industries, Inc. AWI, Frontdoor, Inc. FTDR, Gibraltar Industries, Inc. ROCK and Latham Group, Inc. SWIM stand to gain from operational excellence, geographic and product diversification strategies, strategic acquisitions, and higher infrastructure investments.
Industry Description
The Zacks Building Products - Miscellaneous industry primarily comprises manufacturers, designers and distributors of home improvement and building products like ceiling systems, doors, windows, flooring and metal products. Some industry players provide solutions to rehabilitate the aging infrastructure, primarily pipelines in the wastewater, water, energy, mining and refining industries. The companies also manufacture expansion joints and structural bearings, ventilation products, ground-mounted solar racking and commercial greenhouses, as well as mail storage (solutions including mailboxes along with package delivery products). Companies in this industrial cohort also rent out equipment to a diverse customer base, including construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government entities.
3 Trends Shaping the Future of the Building Products Industry
Rising Costs & Soft Residential Market: Inflationary headwinds with respect to transportation costs, material costs and energy costs have been a pressing concern. Also, rising labor costs are compressing margins. These are dampening the companies’ operating performance. Although the industry participants have been working to recover higher costs through various price increases, they expect this ongoing volatility in material and transportation costs to be a concern. Apart from higher raw material costs, the companies bear expenses related to product launches. If companies are unable to offset these costs through price increases or supply-chain initiatives, their profits may be affected.
The industry's outlook is closely tied to the U.S. housing and renovation markets. The residential real estate market has been facing several challenges, including elevated interest rates, making it difficult for buyers to secure affordable mortgages. The challenging real estate environment, coupled with the effects of inflation on consumer confidence, has been weighing on industry players.
U.S. Administration’s Infrastructural Spending: The industry players are expected to benefit from strong global trends in infrastructure modernization, energy transition, national security and a potential super-cycle in global supply-chain investments. The U.S. administration’s endeavor to rebuild the nation’s deteriorating roads and bridges and fund new climate-resilient and broadband initiatives is expected to aid the companies. Meanwhile, as the industry players’ business prospects are highly correlated with U.S. housing market conditions, improving residential construction markets are expected to drive growth. Builders are now cautiously optimistic for 2025 as the lack of existing inventory is shifting demand to the new home market, thereby driving the demand for companies’ products in the industry. Also, although the Federal Reserve reduced the rate (bringing it to a range of 4.25%-4.5%), mortgage rates remained elevated at 7%. The housing and repair markets could see a recovery driven by potential market stabilization and anticipated reductions in interest rates in 2025.
Operational Excellence, Product Innovation & Acquisitions: The industry participants have been undertaking strong cost-saving initiatives like business consolidation, system implementations, plant/branch closures, improvement in the global supply chain and headcount reductions to boost profitability. Industry participants have also been strategically investing in new products, sales and support services, digitally enabled solutions and advanced manufacturing capabilities to boost revenues. The companies are also following a systematic acquisition strategy to supplement organic growth and expand access to additional markets and products.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Building Products – Miscellaneous industry is a 29-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #174, which places it in the bottom 30% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a lower earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since November 2024, the industry’s earnings estimates for 2025 have been revised downward to $5.67 from $5.90 per share.
Despite the industry’s blurred near-term view, we will present a few stocks that one may consider adding to their portfolio. Before that, it’s worth taking a look at the industry’s shareholder returns and current valuation.
Industry Lags S&P 500 & Sector
The Zacks Building Products – Miscellaneous industry has underperformed the Zacks S&P 500 Composite and the broader Zacks Construction sector over the past year.
Over this period, the industry has rallied 14.9%, underperforming the broader sector’s 15.6% rise. Meanwhile, the Zacks S&P 500 Composite has gained 23% over the same period.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price to earnings, which is a commonly used multiple for valuing building products’ stocks, the industry is trading at 17.6X versus the S&P 500’s 22.3X and the sector’s 17.6X.
Over the past five years, the industry has traded as high as 20.3X, as low as 11.2X and at a median of 16.7X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
5 Building Product Stocks to Keep an Eye On
We have selected five stocks from the Zacks universe of building products that have solid growth prospects.
Frontdoor: Based in Memphis, TN, this company provides home warranties in the United States. The company is benefiting from its focus on new and innovative ways to boost demand for services, and the relaunch of American Home Shield brand is a significant component of this strategy. Looking ahead, the company is committed to establishing a solid foundation by investing in its brand and technology infrastructure and enhancing productivity throughout the organization.
FTDR, a Zacks Rank #1 (Strong Buy) stock, has gained 83.2% over the past year. FTDR has seen an upward estimate revision of 2.9% for 2025 earnings per share (EPS) over the past 30 days to $3.20 per share. The estimated figure indicates 1.4% year-over-year growth for 2025. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 269%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: FTDR
Owens Corning: Headquartered in Toledo, OH, Owens Corning has been benefiting from the combination of operational excellence, market resilience, and strategic initiatives. Roofing has been a strong performer, benefiting from solid shingle demand and effective price management, while Insulation has been witnessing growth driven by favorable product mix and pricing. The integration of the newly acquired Doors business has been progressing as expected, contributing to revenue growth, though market conditions remained challenging. The company also focused on optimizing its portfolio by selling its building products business in China and Korea, allowing it to concentrate on North America and Europe. Strategic investments, such as expanding insulation capacity in Kansas City and ramping up production at the Fort Smith facility, positioned Owens Corning for future growth.
OC, a Zacks Rank #2 (Buy) stock, has gained 25% over the past year. OC has seen an upward estimate revision of 0.6% for 2025 EPS over the past 30 days to $15.85 per share. The estimated figure indicates 2.5% year-over-year growth for 2025. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 11.8%.
Price and Consensus: OC
Gibraltar Industries: Strong demand for controlled-environment agriculture, stable infrastructure supported by government investments, along with strategic expansions and operational discipline, has been helping Gibraltar offset the ongoing challenges associated with trade and regulatory uncertainty in the solar industry. Gibraltar has been benefiting from its focus on operational improvements and the Three-Pillar Strategy. The company continues to accelerate the implementation of three pillars through portfolio management initiatives, improvement of the business system and strengthening of the organization.
ROCK, a Zacks Rank #3 (Hold) stock, has lost 24.9% over the past year. The estimated EPS figure indicates 16.3% year-over-year growth for 2025. The company’s earnings surpassed the Zacks Consensus Estimate in two of the trailing four quarters and missed on other two occasions, the average negative surprise being 0.4%. It currently holds a VGM Score of A.
Price and Consensus: ROCK
Latham Group: Based in Latham, NY, Latham Group, Inc. stands as the leading designer, manufacturer, and marketer of in-ground residential swimming pools and pool accessories across North America, Australia, and New Zealand. Despite difficult industry conditions, the company has been gaining from improved cost structures, production efficiencies, lean manufacturing, value engineering programs, and lower raw material costs. It remains focused on fiberglass pools, which offer cost, installation, and eco-friendly advantages over concrete pools. The company has been expanding its product line and national dealer network, driving awareness and adoption. Meanwhile, the latest acquisition of Coverstar Central, Latham's long-time partner in automatic safety covers, is expected to enhance margins, accelerate sales growth, and strengthen relationships with pool builders, particularly for promoting fiberglass pools.
SWIM, a Zacks Rank #3 stock, has gained 170.2% over the past year. This company surpassed earnings estimates in the last two of the trailing three quarters and met on one occasion, with average being 109.4%. The Zacks Consensus Estimate for 2025 EPS indicates 75% growth. Again, it carries an impressive VGM Score of B.
Price and Consensus: SWIM
Armstrong World Industries: Based in Lancaster, PA, Armstrong World is a leading global manufacturer of ceiling systems primarily for commercial, institutional, and residential building construction and renovation. The company has been thriving by focusing on innovative products and pursuing strategic acquisitions to diversify its portfolio. Its recent acquisition of 3form, LLC is set to bolster the Architectural Specialties segment and strengthen connections with architects and designers. Additionally, Armstrong World has been investing in digitalization and technological advancements. Since 2022, its digital initiative, Canopy, has shown consistent quarterly growth, generating new demand for its products. Furthermore, the company's recent investments in developing new products in metal, wood, and Tectum materials are contributing positively to its performance.
AWI, a Zacks Rank #3 stock, has gained 48.6% over the past year. The company’s EPS for 2025 is expected to increase 10.6% to $6.83. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 10.5%. Again, it carries an impressive VGM Score of B.
Price and Consensus: AWI
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