Here's Why Quanta Services Stock Is A Must Buy At The Moment

Solid end-market prospects and robust three-pronged growth strategy have helped Quanta Services Inc. (NYSE:PWR) deliver strong results in the recent times. Shares of this specialty contracting services provider have jumped 39.7% over a year against 2.3% decline of its industry.

Estimates for 2019 and 2020 have moved 0.3% and 0.8% upward, respectively, over the past 30 days, reflecting analysts’ optimism surrounding the stock’s earnings growth potential. Focus on the base business, long-term programmatic spend of utilities and technology deployments position it well for the future.



Markedly, its superior return on equity (ROE) is indicative of growth potential. The company’s ROE of 12.2% compares favorably with the industry’s average of 10.3%, implying that it is efficient in using its shareholders’ funds.

Let’s delve deeper into the substantial factors that make this Zacks Rank #1 (Strong Buy) company a profitable pick for investors. You can see the complete list of today’s Zacks #1 Rank stocks here.

Solid Prospects: Quanta Services — which shares space with Gates Industrial Corporation plc (NYSE:GTES) , Jacobs Engineering Group (NYSE:J) Inc. (TSXV:JEC) and AECOM (NYSE:ACM) in the same industry — has been performing robustly of late. The company’s earnings topped analysts’ expectations in six out of the last nine quarters, while revenues surpassed the same in 10 of the trailing 11 quarters.

In third-quarter 2019, it reported solid top and bottom-line results. The metrics surpassed the Zacks Consensus Estimate by 6% and 9.6%, and grew 12% and 29.5%, respectively, on a year-over-year basis. The company’s third-quarter performance — which was backed by increased visibility and sustained higher infrastructure investment across end-markets served — and recent acquisitions should help it to perform impressively in the rest of 2019.

Notably, the company lifted its 2019 revenues, earnings and adjusted EBITDA guidance. Robust top line, sound execution of projects and strong growth strategy are benefiting the company. Moreover, these tailwinds are expected to support its growth in the upcoming periods. This is evident from the Zacks Consensus Estimate for 2019 earnings of $3.25 per share, which indicates 15.7% improvement from the year-ago period.

End-Market Growth Remains Solid: Quanta Services’ segments, namely Electric Power and Pipeline and Industrial Infrastructure Services, remain strong on the top-line front. As of Sep 30, 2019, the company had total backlog of $13.3 billion, which compares favorably with $12.3 billion reported at 2018-end. Also, 12-month backlog of $7.6 billion was up from the prior-year end.

Prospects of the Electric Power 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. The segment’s 12-month backlog at the end of third-quarter 2019 was $4.98 billion and total backlog was $8.64 billion, up 17.8% and 9.1% year over year, respectively.

Its Pipeline and Industrial Infrastructure segment’s outlook looks equally promising, primarily on the back of improving mainline and natural gas distribution, and integrity markets. As of Sep 30, 2019, the segment’s 12-month backlog was $2.58 billion and total backlog amounted to $4.64 billion, up from $2.41 billion and $3.79 billion reported at 2018-end, respectively. The release of customer budgets, improved weather and commencement of scheduled projects should boost the segment’s results in the coming quarters.

Strategic Acquisitions Bode Well: Acquisitions have been Quanta Services’ preferred mode of boosting market share and developing incremental backlog. The company had completed four acquisitions in 2018 and six during the first nine months of 2019.

In August 2019, it acquired The Hallen Construction Co., Inc. (Hallen), a leading gas utility contractor serving the U.S. Northeast markets. Also, during the third quarter, it added two specialty utility foundation contractors in the Southeast market.

The company believes that the Hallen buyout and persistent margin enhancement efforts will help it in achieving its medium-term target operating margins of upper single digits for the Pipeline and Industrial Infrastructure Services segment. Acquisitions are expected to contribute $175 million to revenues in 2019 and $525-$575 million in 2020.

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