What's in Store for Materials ETFs in Q3 Earnings?

The materials sector, which tends to be the most sensitive to global economic growth expectations, has been performing well given an improving U.S. economy and rate cuts. The popular ETFs — 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 more than 4% each over the past three months.

Going into the third-quarter earnings season, releases from the sector giants will determine the movement of these funds. Some well-known players in the space, like Linde plc (LIN), Air Products & Chemicals (APD) and Ecolab Inc. (ECL), will report results in the coming days. Let’s delve into the earnings picture of these companies, as that would drive the performance of the funds dominated by them. These stocks collectively account for a 37.2% share in IYM, 28.5% in XLB, 24.6% in FMAT and 24.5% in VAW (see: all the Materials ETFs here).

These stocks have outperformed the broad material sector index over the past three months. APD is leading with 19.7% gains, followed by 5.3% for LIN and 2.2% for ECL. The sector has grown 0.4% in the same period.

Image Source: Zacks Investment Research

According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Inside Our Surprise Prediction for These Stocks

Linde has an Earnings ESP of -0.18% and a Zacks Rank #3 (Hold). The company witnessed a negative earnings estimate revision of a penny over the past 30 days for the to-be-reported quarter. The stock’s earnings surprise track record over the past four quarters has been good, with an average beat of 1.93%. The company will report earnings on Oct 31, before market open.

Linde PLC Price, Consensus and EPS Surprise

Linde PLC price-consensus-eps-surprise-chart | Linde PLC Quote

Air Products & Chemicals has an Earnings ESP of +1.63% and a Zacks Rank #3. It saw a negative earnings estimate revision of a couple of cents over the past 30 days for the to-be-reported quarter. It delivered an earnings surprise of 1.41%, on average, for the last four quarters. The company is scheduled to report on Nov. 7, before market open.

Air Products and Chemicals, Inc. Price, Consensus and EPS Surprise

Air Products and Chemicals, Inc. price-consensus-eps-surprise-chart | Air Products and Chemicals, Inc. Quote

Ecolab is set to release earnings on Oct. 29 before the opening bell. It has an Earnings ESP of +2.99% and a Zacks Rank #3. Analysts raising estimates right before earnings — with the most up-to-date information possible — is a good indicator for the stock. Ecolab has seen positive earnings estimate revision of a penny over the past month for the to-be-reported quarter and delivered an earnings surprise of 0.98%, on average, in the last four quarters.

Ecolab Inc. Price, Consensus and EPS Surprise

Ecolab Inc. price-consensus-eps-surprise-chart | Ecolab Inc. Quote

Stay up-to-date with all quarterly releases:See Zacks Earnings Calendar.

Summing Up

While the sector is expected to post an earnings decline of 6.4%, per the latest Earnings Trends report, some major players have reasonable chances of beating earnings estimates. Additionally, the sector is attractively valued at P/E ratio of 17.02 versus that of broad market index of P/E ratio of 19.83.

Further, the abovementioned ETFs have a favorable Zacks ETF Rank #1 or #3. XLB and VAW have a Zacks Rank #1 each and the rest two have a Zacks Rank #3.