Unveiling Quanta Services (PWR)'s Value: Is It Really Priced Right? A Comprehensive Guide
Quanta Services Inc (NYSE:PWR) has recently seen a daily loss of -1.94%, with a 3-month loss of -0.1%. Despite this, the company maintains an Earnings Per Share (EPS) of 3.92. This prompts a critical question: Is Quanta Services (NYSE:PWR) modestly overvalued? In this article, we will delve into the valuation analysis of Quanta Services, providing an informed perspective on the stock's current market standing.
Company Introduction
Quanta Services is a leading specialty contracting services provider, offering comprehensive infrastructure solutions for various industries including electric and gas utility, communications, pipeline, and energy. With operations extending across the United States, Canada, and Australia, the company is divided into three reportable segments: electric power, renewables infrastructure, and underground utility and infrastructure. Quanta Services' current stock price stands at $184.79, while the GF Value, an estimation of fair value, is $166.54. This comparison prompts a deeper exploration into the company's intrinsic value.
Understanding the GF Value
The GF Value is an exclusive measure of a stock's intrinsic value, based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the stock's fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, its future return will likely be higher.
Quanta Services (NYSE:PWR) appears to be modestly overvalued according to GuruFocus Value calculation. With a current price of $184.79 per share and a market cap of $26.80 billion, the future return of Quanta Services stock is likely to be lower than its business growth due to its relative overvaluation.
Link: These companies may deliever higher future returns at reduced risk.
Examining Quanta Services' Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss. Quanta Services' cash-to-debt ratio of 0.08 is worse than 90.04% of 1606 companies in the Construction industry, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Quanta Services, with an Earnings Per Share (EPS) of $3.92 and an operating margin of 5.03%, has been profitable for 10 of the past 10 years, indicating strong profitability.
Moreover, growth is a crucial factor in the valuation of a company. Quanta Services' average annual revenue growth of 12% and 3-year average EBITDA growth of 16.9% rank better than most companies in the Construction industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another method of determining profitability. For Quanta Services, the ROIC is 5.88, and the WACC is 8.1, suggesting that the company is creating value for shareholders.
Conclusion
In conclusion, Quanta Services (NYSE:PWR) appears to be modestly overvalued. Despite its fair financial condition and strong profitability, its growth ranks better than 71.81% of 1323 companies in the Construction industry. For more information about Quanta Services stock, check out its 30-Year Financials here.
To find high-quality companies that may deliver above-average returns, visit GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.
