Zacks Industry Rank Analysis Highlights: Beacon Roofing Supply, Bucyrus, Builders Firstsource, Caterpillar and JLG Industries.

CHICAGO -- Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week's analysis include Beacon Roofing Supply (Nasdaq:BECN), Bucyrus International (Nasdaq:BUCY), Builders Firstsource (Nasdaq:BLDR), Caterpillar (NYSE:CAT) and JLG Industries (NYSE:JLG). To see the Zacks Industry Rank and the trend in earnings estimates revisions for all 208 industry groups, visit http://at.zacks.com/?id=2563.

Zacks Industry Rank Analysis written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.

There is an old adverb that says the stock markets climb a wall of worry. The wall presently is becoming decorated with fears of inflation. More specifically, worries that the fed will continue to hike rates in an effort to contain inflation. Certainly, having two Fed Chairman raise the possibility of further interest rate hikes is reason to take notice.

Zacks Equity Research is predicting Core CPI growth of 2.3% for 2006 and 2007. Such an increase is modest and would not provide any shock to the economy. Conversely, this modest rate of inflation could provide a boost to corporate profits. The reason is pricing power.

Pricing power is the ability of a company to charge its customers more for products and services. The more pricing power a company has, the more likely that its profits will improve. This is particularly the case if price increases reflect more than simply higher costs for raw materials. Pricing power most often occurs during times of economic expansion.

Machinery-Construction/Mining is a group that is both enjoying pricing power and is poised to benefit from a continuation of economic growth. The group has one Zacks #2 Rank and two Zacks #2 Rank stocks that have exceeded fourth-quarter expectations - JLG Industries (NYSE: JLG), Caterpillar (NYSE: CAT) and Bucyrus International (Nasdaq: BUCY). JLG, which reported last week, credited price increases for contributing to its record revenues. Analysts have upwardly revised their forecasts for 2006 profits on all three companies. CAT is enjoying increased demand for its products because of higher commodity prices (translates into more investment in mines and mining products), regulations calling for eco-friendly truck engines and higher energy prices which have boosted sales of engines for drilling and compression and gas-powered turbines. BUCY, which makes equipment for surface mining, is seeing sales rise for both new machine equipment and aftermarket equipment. The company's backlog is up nearly 20% from a year ago.

Another group with companies that appear to be enjoying pricing power is Building Products-Retail/Wholesale. Beacon Roofing Supply (Nasdaq: BECN) and Builders Firstsource (Nasdaq: BLDR). Both companies recently reported strong quarterly results, topping per share earnings expectations by eight and 11 cents, respectively. BECN said it enjoyed "improved pricing" in some of its markets, although, investors should be aware that the addition of a lower-margin product line did cause overall gross margins to tighten. Nonetheless, two of the four analysts covering this stock have raised their forecasts for fiscal 2006, causing the consensus estimate to increase 8% to $1.51 per share. BLDR enjoyed wider gross margins on all of its product categories, except for lumber and lumber sheet goods. The company did credit higher lumber prices for contributing to its strong fourth quarter, however. Estimates for 2006 profits were rising prior to last week's earnings report and one analyst has already revised his forecast since the release of fourth-quarter earnings. The new consensus estimate calls for profits of $2.54 per share.

Although not every company in the Zacks Rank universe(a) is enjoying pricing power, fourth-quarter earnings, in aggregate, are exceeding expectations. Out of the 2723 companies that have reported, 2.2 have topped expectations for every company that has missed. The ratio of revenue surprises to misses(b) is 1.4-1.

The trend in earnings estimate revisions for 2006 improved last week. Analysts have raised estimates on 1626 companies and lowered estimates on 1767 companies. The average revision(c) was -0.5%, versus -0.8% last week. Analysts project the average company(d) to grow profits 12.6% this year.

(a)The Zacks Rank is assigned to companies with earnings estimates made available by brokerage analysts. The Zacks' database contains earnings estimates for approximately 4400 companies. As of Friday's close, 2,738 companies within the Zacks Rank universe have reported fourth-quarter results.

(b)Revenue forecasts are available on a smaller pool of companies, then earnings estimates. Within this smaller group, 1291 companies have exceeded revenue estimates, 918 have missed, and 34 have matched.

(c)Changes to 2006 earnings estimates made within the four-week period following the release of earnings. Outliers with estimate changes of 80% or more were excluded from the average change. When these companies are included, the average change in estimates was -4.0%.

(d)The average projected 2006 EPS growth rate for companies within the Zacks Rank universe that have reported fourth-quarter results. Outliers with projected growth rates of 80% or more are excluded. When all companies are included, the average projected growth rate is 45.0% and the median is 13.3%.

About Zacks Industry Rank and the Zacks Rank

Zacks Industry Rank is calculated by averaging the Zacks Rank for all covered companies within a given industry. The Zacks Rank is assigned to approximately 4400 stocks and ranges from #1 ("Strong Buy") to #5 ("Strong Sell"). Both the Zacks Industry Rank and the Zacks Rank are quantitative indicators designed to cover periods of 1-3 months.

For over 18 years, the Zacks Rank has proven that "Earnings estimate revisions are the most powerful force impacting stock prices." Since inception in 1988, #1 Rank stocks have generated an average annual return of +33%. During the 2000-2002 bear market, Zacks #1 Rank stocks gained +43.8%, while the S&P 500 tumbled -37.6%. Also note that the Zacks Rank system has just as many Strong Sell recommendations (Rank #5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5 stocks have underperformed the S&P 500 by 143.5% annually (+4.9% vs. +12%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.

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The Zacks Rank, and all of its recommendations, is created by Zacks & Co., member NASD. Zacks.com displays the Zacks Rank with permission from Zacks & Co. on its web site for individual investors.

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(a)The Zacks Performance Rank performance is the total return of equal weighted simulated portfolios consisting of those stocks with the indicated Zacks Rank net of fees. Results reflect the reinvestment of dividends and other earnings. Simulated results do not represent actual trading and may not reflect the impact that economic and market factors might have had on decision-making if an adviser were actually managing a client's money.

(b)The S&P 500 Index ("S&P 500") is a well-known, unmanaged index of the prices of 500 large-company common stocks selected by Standard & Poor's. The S&P 500 includes the reinvestment of all dividends, no transaction costs, and represents the gross returns before management fees.

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.