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Quanta Services (PWR) to Report Q2 Earnings: What's Up?

Zacks Equity Research

Quanta Services, Inc. PWR is slated to report second-quarter 2019 results on Aug 1, before the opening bell. In the last reported quarter, the company’s adjusted earnings of 96 cents per share and total revenues of $2.81 billion surpassed the Zacks Consensus Estimate by 11.6% and 7.4%, respectively. Also, on a year-over-year basis, the top and bottom lines increased 16.1% and 146.2%, respectively.

The solid performance was backed by robust spending by electric utilities on grid modernization and system hardening, as well as gas utilities on distribution system modernization and safety programs. These factors are likely to help the company post improved results in the second quarter as well.

Which Way are Estimates Trending?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

Quanta Services, Inc. Price and EPS Surprise

Quanta Services, Inc. Price and EPS Surprise

Quanta Services, Inc. price-eps-surprise | Quanta Services, Inc. Quote

The Zacks Consensus Estimate for the quarter to be reported is currently pegged at 84 cents, indicating 42.4% growth from 59 cents in the year-ago quarter. Total revenues are expected to be $2.89 billion, suggesting 8.8% increase from the year-ago reported figure.

Factors at Play

Quanta Services is expected to generate higher earnings and revenues in the second quarter, given strong base business activity and ramped-up construction activities in larger pipeline projects.

Solid backlog levels in end-markets served, three-pronged growth strategy focusing on timely delivery of projects to exceed customer expectation, leverage on core business to expand in complementary adjacent service lines and the ongoing momentum of exploring new service lines are likely to aid Quanta Services’ upcoming quarterly result.

The company sees acquisitions as a fundamental component of its strategy to boost market share and develop incremental backlog. This bolt-on acquisition strategy is anticipated to boost top-line growth in the quarter to be reported.

Let’s Delve Deeper Into Segmental Discussion

Quanta Services remains optimistic about end-market prospects of both the segments, namely Electric Power and Oil & Gas.

Its Electric Power Infrastructure Services segment, which contributed 59.3% to first-quarter revenues, has been riding high on modest revenue growth and solid margin expansion, backed by outstanding execution of a large transmission project. This is likely to benefit the quarter to be reported as well.

However, the company expects second-quarter margins from the electric segment to be the lowest in the year, due to shift in project revenues owing to seasonality.

The communications business (part of its Electric Power segment) — which contributed more than 50% to revenue growth in 2018 — is anticipated to post improved results in the to-be-reported quarter. Prospects of the segment remain robust, given customers’ investment in 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 and support long-term economic growth.

Markedly, the Zacks Consensus Estimate for the segment’s second-quarter revenues is pegged at $1,800 million, implying growth from $1,664 million in the last reported quarter and $1,570 million a year ago. Backlog in the segment is expected to be $7,915 million, up from $7,135 million a year ago.

Quanta Services’ Oil and Gas Infrastructure Services segment (40.7%) looks equally promising. The solid prospect is primarily owing to improving mainline and natural gas distribution, and integrity markets. The company expects strong performance from pipeline projects, given healthy levels of base load work, including midstream infrastructure support, downstream support services and natural gas distribution. This is in turn expected to boost profitability in the second quarter.

Sales and margins are expected to improve in the quarter to be reported, aided by the above-mentioned tailwinds, and ongoing improvement in gas distribution and base businesses.

Notably, the Zacks Consensus Estimate for the segment’s second-quarter revenues is currently pegged at $1,125 million, up from $1,086 million reported in the year-ago period. Backlog in the segment is currently anticipated to be $4,382 million, implying an increase from $4,358 million reported in the prior year.

What the Zacks Model Says

Our proven model does not conclusively show that Quanta Services is likely to beat estimates in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, the company carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Meanwhile, we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks With Favorable Combination

Here are some Construction companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming releases:

Jacobs Engineering Group Inc. JEC has an Earnings ESP of +1.60% and a Zacks Rank #3.

KBR, Inc. KBR has an Earnings ESP of +1.16% and a Zacks Rank #2.

M.D.C. Holdings, Inc. MDC has an Earnings ESP of +2.68% and a Zacks Rank #1.

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