Company Overview: Quanta Services, Inc. (NYSE: PWR) is a specialized contracting services company, which delivers infrastructure solutions for the renewable energy, communications, utility, pipeline, and energy industries. PWR’s comprehensive services involve installing, designing, maintaining, and repairing energy, and communications infrastructure.

­­­­­­PWR Details

Material Business Updates

Figure 1: Valuable Business Updates

Source: Analysis by Kalkine Group

Historical Financial Trend:

PWR illustrated sustainable historical growth while keeping the value proposition intact. The operating revenues have been growing since FY16 until COVID-19 disruptions struck in FY20 while gross profit kept on holding a growing phase. Operating revenues grew at a 10.0% CAGR (FY16 – FY20).

Figure 2: Historical Financial Overview

Source: Company Reports, Analysis by Kalkine Group

Third Quarter FY21 Performance:

Figure 3: Quarterly Performance

Source: Company Reports, Analysis by Kalkine Group

Full-Year FY20 Performance:

Figure 4: Annual Performance

Source: Company Reports, Analysis by Kalkine Group

Top 10 Shareholders:

The top 10 shareholders together form ~38.77% of the total shareholding. The Vanguard Group, Inc. and Fidelity Management & Research Company LLC hold a maximum stake in the company at ~10.34% and ~5.67%, respectively.

Figure 5: Top 10 Shareholders

Source: Analysis by Kalkine Group

Key Metrics:

Consistent growth in sales volume across electric power infrastructure solutions and underground utility and infrastructure solutions has translated into long-term sustainable growth levels. Despite bouncing revenue in FY20, PWR demonstrated substantial operational efficiency at an aggregate level, highlighted by steady growth in gross margins. On liquidity, the company managed steady current ratio in FY20 over the prior year.

Figure 6: Key Financial Metrics

Source: Analysis by Kalkine Group

Outlook:

Meaningful Accretion from Blattner Acquisition: PWR expects Blattner Holding Company to improve its financial profile. For FY22, PWR estimates a revenue inflow of US$2.5-2.7 billion from Blattner and an adjusted EBITDA contribution of US$250-290 million.

Electric Power Infrastructure Solutions Segment: PWR’s joint venture with ATCO has opted for the operation, maintenance, and development of electric transformation & distribution systems in Puerto Rico, and other affiliates.

Underground Utility and Infrastructure Solutions Segment: FY21 revenue expectations are slightly moderated, owing to shredded revenues. Segment margins are expected to range between 4.5% and 5.0%, including the unfavorable impact of $23.6 million credit loss, affecting nearly 70 bps.

Figure 7: FY21 Guidance

Source: Analysis by Kalkine Group

Key Risks:

High Competition: PWR operates in a highly competitive space with other contractors. Additionally, barriers to entry are low which makes organizations with technical expertise and financial resources a potential competitor.

Increased Revenue Volatility: Post COVID-19, the market dynamics have changed which has crunched the operating margin and substantially affected pipeline projects, adversely affecting the bottom line.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Stock Recommendation:

PWR has delivered 3-month and 6-month returns of ~-6.755% and ~+19.592%, respectively. The stock is trading above the average of the 52-week low price of US$69.84 and the 52-week high price of US$124.69, indicating a trending opportunity. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company might trade at a slight premium compared to its peers’ average EV/Sales (NTM trading multiple), considering meaningful accretion from the Blattner acquisition and favorable guidance. For valuation, a few peers like Dycom Industries Inc (NYSE: DY), Valmont Industries Inc (NYSE: VMI), Comfort Systems USA Inc (NYSE: FIX), have been considered. Given the continuous uptick in renewable energy infrastructure demand, high investment and strategic insight for technological growth, favorable guidance for operating margin, the current trend in the equity market, and potential upside as indicated by the valuation, we give a “Buy” recommendation on the stock at the current market price of US$105.02 as of 18 January 2022, at 10:24 AM (GMT+5), New York, USA.

PWR Daily Technical Chart (Source: REFINITIV)

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.