U.S. Markets closed

Why Is Quanta Services (PWR) Down 11% Since Last Earnings Report?

Zacks Equity Research
Peapack-Gladstone (PGC) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

A month has gone by since the last earnings report for Quanta Services (PWR). Shares have lost about 11% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Quanta Services due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Quanta Services (PWR) Q1 Earnings Top Estimates, Guidance Up

Quanta Services Inc. kicked off 2019 on an impressive note, backed by strong Electric Power Infrastructure Services business. The company reported first-quarter 2019 adjusted earnings of 96 cents per share, surpassing the Zacks Consensus Estimate of 86 cents by 11.6%.

Moreover, the reported figure considerably increased 146.2% from 39 cents recorded a year ago. The performance was backed by robust spending by electric utilities on grid modernization and system hardening, and by gas utilities on distribution system modernization and safety programs.

Total revenues came in at a record level of $2.81 billion, surpassing the consensus mark of $2.61 billion by 7.4%. Also, the top line increased 16.1% year over year, aided by robust revenue growth across the board.

Segment Details

Of the total quarterly revenues, the Electric Power Infrastructure Services segment accounted for 59.3%, and Pipeline and Industrial Infrastructure Services contributed 40.7%.

Revenues from Electric Power Infrastructure came in at $1,664 million, up 6.1% year over year. Operating income of $161.6 million was up 14.7% from the year-ago level. Operating margins expanded 70 basis points (bps) to 9.7%.

Pipeline and Industrial Infrastructure Services segment revenues grew 34.6% from the prior-year quarter to $1,143.2 million. Moreover, operating income of $40.7 million was up 304% from the year-ago period. Operating margins of 3.6% were up 240 bps.

Operating Highlights

In the reported quarter, overall operating income came in at $119.5 million compared with the prior-year figure of $75.2 million. Operating margin surged 120 bps from a year ago.

Total backlog as of Mar 31, 2019 was a record $12.6 billion and 12-month backlog was $6.9 billion. This compares favorably with $12.3 billion of total backlog and $7 billion of 12-month backlog at 2018-end.

Liquidity

As of Mar 31, 2019, Quanta Services’ cash and cash equivalents were $85.4 million, up from $78.7 million at 2018-end. The company’s long-term debt and notes payable (net of current maturities) amounted to $1,345 million, up from $1,040.5 million as of Dec 31, 2018.

Net cash used in operating activities in the quarter under review totaled $82.8 million versus $26 million cash provided by operating activities.

Free cash flow was negative $140.5 million in the quarter compared with $35 million a year ago.

Acquisitions

Quanta Services completed one acquisition during the January to March quarter of 2019 and four acquisitions during 2018.

2019 Guidance Up

Buoyed by strong performance in the first quarter, accompanied with increased visibility for electric power services, the company lifted its 2019 expectation.

The company 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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Quanta Services has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Quanta Services has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Quanta Services, Inc. (PWR) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.