Yahoo Finance Quanta (PWR) Stock Sees 26.1% YTD Gains Amid Challenges
Quanta Services Inc.’s PWR shares have been riding high as the company has been capitalizing on megatrends to lead the energy transition and enable technological development. Initiatives toward a reduced-carbon economy continue to drive the demand for PWR’s services and depict incremental growth opportunities. These factors have helped the company to gain 26.1% year to date, outperforming the industry’s 7.2% rise.
Earlier this month, Quanta reported impressive financial numbers for third-quarter 2022. Adjusted earnings and revenues increased 19.6% and 33% year over year, respectively. The company’s earnings beat the Zacks Consensus Estimate in nine of the 10 consecutive quarters. Moreover, revenues surpassed the consensus mark in seven of the 10 consecutive quarters.
Notably, Quanta achieved strong double-digit growth of adjusted EBITDA and adjusted earnings per share, which is reflective of the benefits of operations portfolio strategy and strategic capital deployment.
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However, this Zacks Rank #3 (Hold) company remains vulnerable to supply-chain disruptions, regulatory challenges, and risks like project delays and stiff competition. Also, lower operating margins are concerning. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Factors Favoring the Stock
Backlog Solid: The company ended third-quarter 2022 with a total backlog of $20.87 billion and a 12-month backlog of $12.43 billion. This compares favorably with $17.02 billion of the total backlog and $9.76 billion of a 12-month backlog a year ago. This demonstrates the strength of its core operations. Quanta’s optimism stems from healthy backlog levels, which are expected to grow further.
The Zacks Consensus Estimate for 2023 earnings of $6.85 per share calls for 9.4% year-over-year growth.
Energy Transition Trend to Drive Growth: The development and deployment of technology solutions across the full spectrum of decarbonization efforts, including carbon management mitigation and compliance consulting, as well as all facets of infrastructure for providing carbon-free energy solutions, will benefit the company going forward. PWR has been experiencing growing demand for renewable generation and infrastructure solutions for 2023 and beyond, giving continued confidence in its multi-year financial targets.
Quanta remains uniquely positioned to capitalize on the megatrends and opportunities to lead the energy transition and enable technological development with initiatives such as electric vehicle charging infrastructure and undergrounding of electrical infrastructure gaining momentum.
As a result, Quanta envisions delivering a 10% organic adjusted EPS compound annual growth rate (“CAGR”) and more than 15% adjusted EPS (CAGR) through 2026.
Electric Power Operations Strong: Electric Power operations continued to perform well from a top-line perspective. Segmental revenues, which comprise revenues from base business activities, including communications operations, grew 20.6% in the first nine months of 2022, 17.9% in 2021 and 9.1% in 2020 year over year. The solid performance was backed by base business activities, courtesy of robust spending by electric utilities on grid modernization and infrastructure hardening, particularly in the western United States, and gas utilities on distribution system modernization and safety programs.
As of Sep 30, 2022, the segment’s 12-month backlog was $7.19 billion (up from $6.11 billion a year ago) and the total backlog was $12.98 billion (up from $11.49 billion reported in the prior-year quarter). Prospects of the Electric Power segment remain robust, given customers’ investment in grid modernization programs intended to address the aging infrastructure, strengthen systems for resiliency against extreme weather conditions and support long-term economic growth.
Hurdles
The company’s operating margin in the third quarter of 2022 declined 100 basis points year over year. This was due to lower margins in Electric as well as Renewable Energy units.
The Electric segment's operating income margins in third-quarter 2022 declined due to lower emergency restoration services revenues and the completion of a large transmission project, which contributed to lower equipment utilization, and fixed and indirect cost absorption, as well as less favorable results associated with normal variability in overall project timing and project mix.
The Renewable Energy Infrastructure Solutions unit’s third-quarter operating margin also contracted due to lower margins on a large renewable transmission project in Canada and a change in the mix of work due to acquisitions, and less favorable results associated with normal variability in overall project timing.
Supply-chain disruptions, inflation, COVID-19 and regulatory uncertainties are other concerns.
3 Better-Ranked Construction Stocks Hogging the Limelight
Some better-ranked stocks, which warrant a look in the Construction sector, include:
EMCOR Group, Inc. EME — carrying a Zacks Rank #2 (Buy) at present — is one of the leading providers of mechanical and electrical construction, industrial and energy infrastructure, and building services for a diverse range of businesses.
EME’s expected earnings growth rates for 2022 and 2023 are 10.2% and 17%, respectively. The Zacks Consensus Estimate for current-year and next-year earnings has improved 0.4% and 3.3%, respectively, over the past 30 days.
Sterling Infrastructure, Inc. STRL — also currently carrying a Zacks Rank #2 — has been benefiting from broad-based growth across the e-infrastructure, building and transportation solutions segments.
STRL’s expected earnings growth rates for 2022 and 2023 are 47.4% and 6.3%, respectively. The Zacks Consensus Estimate for current-year and next-year earnings has improved 4.3% and 3.4%, respectively, over the past 30 days.
Altair Engineering Inc. ALTR — also currently carrying a Zacks Rank #2 — provides software and cloud solutions in simulation, high-performance computing, data analytics, and AI worldwide.
ALTR’s expected earnings growth rates for 2022 and 2023 are pegged at 10.6% and 21.5%, respectively.
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