Strong base business activity has been driving Quanta Services Inc.’s PWR performance over the last few quarters. The company’s shares have advanced 14.1% over the past three months compared with 6.4% gain of S&P 500 and 14.8% increase of its industry.
Meanwhile, 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 have also moved up 8% over the past 30 days, reflecting analysts’ optimism surrounding the stock’s bottom-line growth potential.
This positive trend justifies the company’s Zacks Rank #1 (Strong 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 stocks here.
Let’s delve deeper into other factors that make this stock a solid pick.
Solid End-Market Prospects: Quanta Services remains confident about end-market prospects of both of its segments, namely Electric Power and Pipeline and Industrial Infrastructure Services. Electric Power operations continue to execute well from both a top line and margin perspective. During 2018, the segment’s revenues increased 14.6% year over year and operating margin expanded 50 basis points (bps).
As of Dec 31, 2018, the segment’s 12-month backlog was $4.6 billion and total backlog amounted to $8.5 billion, representing respective growth of 13% and 16%. Prospects of the Electric Power segment remain robust, given customers’ investment for grid modernization programs to accommodate a changing fuel generation mix toward natural gas and renewables, intended to address the aging infrastructure, strengthen systems for resiliency against extreme weather conditions, as well as support long-term economic growth.
Meanwhile, Quanta Services’ Pipeline and Industrial Infrastructure segment’s outlook looks equally promising, primarily due to improving mainline and natural gas distribution, and integrity markets. In 2018, the company’s Pipeline and Industrial Infrastructure segment recorded double-digit revenue growth (up 23%) on a year-over-year basis, mainly on account of base business activity in natural gas distribution, pipeline integrity and industrial services operations, as well as significantly larger pipeline project activity.
Solid Growth Prospects: Robust top line, sound execution of projects and strong growth strategy continue to drive its growth. The company’s 2018 adjusted earnings came in at $2.81 per share, reflecting an increase of 42.6% from the 2017 level. Revenues were a record $11.17 billion, up 18% from a year ago. Operating margin improved 80 bps to 4.8% during the year. EBITDA increased 27% from a year ago in 2018, surpassing $900 million for the first time in Quanta Services’ history. The company ended the year with a record backlog of approximately $12.3 billion, comprising 12-month and total backlog for its Electric Power segment. This demonstrates the strength of its core operations.
Currently, the company is pursuing a three-pronged growth strategy that focuses on timely delivery of projects to exceed customer expectation, leveraging core business to expand in complementary adjacent service lines and exploring new service lines on an ongoing basis.
Quanta Services has solid growth prospects, as is evident from the Zacks Consensus Estimate for 2019 earnings of $3.24 per share, which reflects 27.9% year-over-year growth.
Overall, it constitutes a great pick in terms of growth investment, supported by Growth Score of A.
VGM Score: Quanta Services has a VGM Score of A. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with VGM Scores of A or B, when combined with a Zacks Rank #1 or 2 (Buy), make a solid investment choice.
Other Stocks to Consider
Other top-ranked stocks in the Construction sector include Jacobs Engineering Group Inc. JEC, Altair Engineering Inc. ALTR and EMCOR Group, Inc. EME, each carrying a Zacks Rank #2.
Jacobs, Altair and EMCOR’s 2019 earnings are expected to grow 18.2%, 58.6% and 6.9%, respectively.
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