Quanta Services Inc. PWR has been gaining investors’ confidence on the back of strong base business activity and robust end-market prospects of both of the segments, namely Electric Power and Pipeline and Industrial Infrastructure.
Shares of the company have gained 25.4% so far this year compared with its industry’s 23.7% collective growth. Also, the company has outperformed the S&P 500’s 15.1% rise in the said period. Encouragingly, its earnings surpassed the Zacks Consensus Estimate in five of the trailing seven quarters.
Notably, earnings estimates have been upwardly revised over the past few weeks, suggesting that sentiments on Quanta Services are moving in the right direction. Earnings estimates for 2019 and 2020 have advanced 3.7% and 2.2%, respectively, over the past 60 days. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
What’s Working in Favor of the Stock?
Solid Performance & Prospects of Electric Power Operations: This segment has been exhibiting stellar performance over the last few quarters, given higher revenues and margins. The performance was mainly backed by robust spending by electric utilities on grid modernization and system hardening, as well as by gas utilities on distribution system modernization and safety programs.
Precisely, Quanta Services’ communications infrastructure services business is performing brilliantly. For instance, communications operations ended 2018 on a strong note, contributing to revenue growth of more than 50% from a year ago, driven by U.S. operations. The trend continued in the first quarter 2019 as well. The company expects communications operations to generate approximately $500 million of revenues in 2019, with mid-single-digit operating income margins on a full-year basis. Prospects of the Electric Power segment remain robust, given its solid backlog position. As of Mar 31, 2019, the segment’s 12-month backlog was $4.5 billion and total backlog was $8.4 billion.
Promising Prospects for Pipeline and Industrial Infrastructure Services Operations: The company’s prospects for industrial services look good, given expanding utility-based gas distribution and Integrity operations. The segment has significant opportunities, which include supporting mainline and midstream infrastructure, downstream industrial services, natural gas distribution, pipeline integrity, MSAs, pipeline logistics management, horizontal directional drilling, as well as drill services and engineering.
Meanwhile, large pipeline projects across North America continue to aid its pipeline construction operations. This division is well positioned to benefit from LNG and petroleum export development in the United States and Canada.
Solid Inorganic Drive: Acquisitions have been Quanta Services’ preferred mode of boosting market share and developing incremental backlog. The company completed one acquisition during the January to March quarter of 2019 and four acquisitions during 2018. The 2018 buyout of Northwest Lineman College, a dominant educational and training organization, enabled it to offer training services across the entire lifespan of a line worker's career. Again, the acquisition of specialized services company, Stronghold, provided high pressure and critical path solutions to downstream and midstream energy markets.
Upbeat View & Solid Growth Prospects: Buoyed by strong performance in first-quarter 2019 and increased visibility for electric power services, the company lifted 2019 expectation. It now expects adjusted earnings in the range of $3.40-$3.86 per share versus $3.30-$3.75 expected earlier. Revenues are projected in the range of $11.2-11.6 billion, up from prior expectation of $10.8-$11.2 billion. Adjusted EBITDA is now expected in the range of $905-$1 billion versus $875-$975 million projected earlier.
Overall, Quanta Services has solid growth prospects, as is evident from the Zacks Consensus Estimate for 2019 earnings of $3.64 per share, which indicates 29.5% year-over-year improvement.
Superior ROE: Its return on equity (“ROE”) supports growth potential. The company’s ROE of 12.7% compares favorably with the industry’s average of 11.3%, implying that it is efficient in using its shareholders’ funds.
Other Stocks to Consider
Other top-ranked stocks in the Construction space include AECOM ACM, Altair Engineering Inc. ALTR and KBR, Inc. KBR, each carrying a Zacks Rank #2.
AECOM has a solid earnings surprise history, having surpassed the consensus mark in all the trailing four quarters, with the average being 6.2%.
Altair Engineering’s earnings for the current year are expected to increase 53.7%.
KBR’s earnings surprise history is also impressive, having outpaced the consensus estimate in the preceding four quarters, with the average being 8.9%.
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