Quanta Powers Up

2/3/2014


  Recent Price
$31
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
20
  Shares (millions)
215
  Long-Term Debt as % of Capital
0%
  52-Week Price Range
$32.22 - $25.26

Quanta Services ($31; PWR), the largest specialty contractor for pipelines and electricity-transmission networks in the U.S., has delivered impressive growth in recent quarters. In the year ended September, Quanta managed growth of 13% in sales and 32% in per-share operating profits.

Quanta says North America has just entered the early stages of a multiyear cycle of investment in electric and pipeline infrastructure. The company's backlog ($8.09 billion at the end of September, with $4.37 billion to be realized over the next 12 months) reflects strong end-market demand. Backlog grew 19% from year-earlier levels.

The stock has risen 12% since the end of September, versus the 8% gain for the S&P 1500 Industrial Sector Index. Despite that strong growth, the stock's price/earnings ratio of 20 is still 23% below the three-year average. Quanta was initiated as a Buy and a Long-Term Buy in the Jan. 27 issue.

Company profile

Even if you've never heard of Quanta, you may have benefited from its activities.

Quanta builds, repairs, and maintains infrastructure for electric-power and energy-pipeline networks. The company has served more than 90% of Canadian utilities and more than 60% of publicly traded U.S. utilities. That broad-based client list limits Quanta's reliance on any individual customer; no single client accounted for more than 12% of revenues in the nine months ended September.

Electric-power operations (70% of revenue, 74% of operating income in the nine months ended September) focus mostly on transmission towers, wires, and substations. In the first nine months of 2013, sales rose 8% and profits 12%. With the U.S. energy grid in sorry shape (the American Society of Civil Engineers rates it D+) and utilities working to diversify their sources of power by incorporating new wind and solar farms, Quanta should be busy for the next several years. The company said the power industry plans to build 260,000 miles of new transmission lines.

Backlog for the natural gas and pipeline unit (28% of revenue, 17% of operating income) topped $2.2 billion at the end of September, up 47% from a year earlier and more than doubling since the end of 2010. The explosion of shale exploration and drilling has driven demand for pipelines, with projects pending for pipes to transport oil and natural gas from the center of North America to population centers in east and west Canada, as well as to refineries in Texas and the Gulf Coast.

Quanta licenses fiber-optic infrastructure in eight U.S. markets and provides other telecom-related services to its utility and energy clients (3%, 9%).

We expect Quanta to continue putting up solid growth. The consensus projects per-share profits dipped 15% in the December quarter (release slated for Feb. 17) but will grow 18% in 2014.

The company augments its internal growth through acquisitions, most recently the October purchase of two energy contractors for a total of $178 million in cash and stock. One of the companies makes equipment for offshore drilling, a new market Quanta plans to invade slowly but steadily.

You can acquire an annual report for Quanta Services Inc. at 2800 Post Oak Blvd., Suite 2600, Houston, TX 77056, (713) 629-7600, www.quantaservices.com.

QUANTA SERVICES
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Sep '13
0.43
vs.
0.39
7%
29.13
-
25.57
19 - 17
Jun '13
0.33
vs.
0.27
6%
30.56
-
25.26
21 - 17
Mar '13
0.34
vs.
0.22
19%
29.94
-
27.57
22 - 20
Dec '12
0.48
vs.
0.32
20%
27.96
-
22.92
23 - 19
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2012
5.92
1.36
0.00
27.96
-
20.21
21 - 15
2011
4.62
0.62
0.00
24.18
-
15.37
39 - 25
2010
3.93
0.72
0.00
23.23
-
16.75
32 - 23
2009
3.32
0.70
0.00
25.80
-
15.84
37 - 23
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
93
88
70
83
68
55
59

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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