Quanta Services (PWR) Q1 Earnings: Will It Disappoint?

Quanta Services Inc. (NYSE:PWR) is expected to report first-quarter 2016 results before the opening bell on May 5.

In the last reported quarter, the company delivered an earnings beat of 8%.

Quanta Services’ recent earnings history has been quite volatile, as depicted in the chart below. The company beat the Zacks Consensus Estimate in two of the trailing four quarters, but a huge miss in one led to an average negative surprise of 3.9%.

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

Quanta Services has been facing major headwinds in recent times, like harsh weather events, project delays and abrupt shifts in small transmission market dynamics. In addition, the collapse in oil prices, especially its effect on the Canadian economy, has been a significant drag on the company’s operations. We expect such conditions to undermine the company’s top line as well as profits in the upcoming quarter as well.

In addition, Quanta Services’ financials have been adversely impacted by the soft performance of its Electric Power Infrastructure business. The segment was plagued by headwinds like low customer spending, decline in emergency restoration services revenues and delays in project timing owing to regulatory and permitting issues related to large electric transmission projects.

Moreover, the company expects a decline in the volume of large transmission revenues, and this will likely weigh on revenues for the quarter under review.

At present, one of the biggest challenges for the company is obtaining the sighting and permission for energy infrastructure projects, including major electric transmission programs, and this continues to weigh on its profitability. Also, macroeconomic factors like volatility in oil & gas market, reduced consumer spending, strengthening of the U.S. dollar and unfavorable weather conditions may pose as concerns for first-quarter 2016 results.

On the positive side, an overall increase in spending for upgrade and expansion of transmission & distribution infrastructure, improving system reliability and delivering renewable electricity from new-generation sources to demand centers, will likely combat most of these challenges. Moreover, many of the company’s key customers in North America have robust capital programs in progress, which are focused on upgrading and expanding transmission and distribution infrastructure. This should translate into additional revenues for the company.

Quanta Services closed 11 acquisitions during 2015, thus positioning itself for solid internal growth. These acquisitions will likely bolster the company’s revenues during the to-be-reported quarter.

Earnings Whispers

Our proven model does not conclusively show that Quanta Services will beat earnings this season. 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. This is not the case here as you will see below.

Zacks ESP: The Earnings ESP for Quanta Services is -18.18% with the Most Accurate estimate lagging the Zacks Consensus Estimate of 22 cents by 4 cents.

Zacks Rank: Although Quanta Services’ Zacks Rank #3 increases the predictive power of ESP, we also need to have a positive ESP to be confident of an earnings surprise call.

Note that we caution against stocks with Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

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

The Earnings ESP for American Midstream Partners, LP (NYSE:AMID) is +22.73% and it holds a Zacks Rank #3. The company is expected to release its quarterly results on May 9.

Karyopharm Therapeutics, Inc. (NASDAQ:KPTI) has an Earnings ESP of +11.11% and a Zacks Rank #3. The company is expected to release quarterly earnings results on May 9.

Pattern Energy Group Inc. (NASDAQ:PEGI) has an Earnings ESP of + 466.67% and a Zacks Rank #3. The company will report quarterly results on May 9.