Quanta: A Safe Haven in Infrastructure

09/16/2020 5:00 am EST

Focus: INDUSTRIALS

Bruce Kaser

Chief Analyst, Cabot Undervalued Stocks Advisor

Quanta Services (PWR) is a leading specialty infrastructure solutions provider serving the utility, energy and communication industries, observes Bruce Kaser, editor of Cabot Undervalued Stocks Advisor.

Their infrastructure projects have meaningful exposure to highly predictable, largely non-discretionary spending across multiple end markets, with 65% of revenues coming from regulated electric, gas and other utility companies.

Quanta achieved record annual revenues, operating income and backlog in 2019, and is pursuing a multi-year goal of increasing margins. Dividend payouts and share repurchase activity have continued uninterrupted during the pandemic.

We view this company as high quality, well run and resilient. The market views PWR shares as a safe haven in an unpredictable market and economy, helping the shares to fully recover from their March 2020 lows.

The new 15-year contract to operate and modernize Puerto Rico’s energy grid is an encouraging positive as the company is seeking to shift toward a capital-light, recurring profit model.

Quanta reported strong second-quarter results, with per-share earnings of $0.74 more than doubling its year-ago results. Earnings were 57% above the consensus estimate.

From a quality perspective, Quanta removes a lot of costs from their reported earnings to arrive at adjusted earnings — it’s not uncommon to see their adjusted results be 50% higher than reported results.

PWR shares currently trade at 15.6x estimated 2020 earnings of $3.30 and about 12.8x estimated 2021 earnings of $4.02. We are putting a $61 price target on Quanta shares, based on 8x EV/EBITDA using 2021 estimated results. For long-term holders, Quanta stock looks well-positioned to continue to prosper.

Subscribe to Cabot Undervalued Stocks Advisor here…

Related Articles on INDUSTRIALS