Earnings Preview: Quanta Services

Quanta Services Inc. ( PWR - Analyst Report ) is slated to release its third-quarter 2011 results on Wednesday, November 2, 2011. The current Zacks Consensus Estimate for third-quarter earnings per share (EPS) is 24 cents, representing an annualized decline of 18.89%.

Quanta Services’ earnings were ahead of the Zacks Consensus Estimate by 2 cents in the last quarter while had underperformed in the first quarter of 2011 and was in line in third quarter and fourth quarter of 2010 with an average negative surprise of 0.04%.

Second Quarter Highlights

Total revenue for the quarter was $1.01 billion compared with $870.5 million in the prior-year quarter. The result for the quarter includes contribution from Valard acquisition, which wascompleted on October 25, 2010. Consolidated backlog at the end of the quarter was $6.9 billion compared with $6.56 billion at the end of the prior-year quarter.

Electric Power revenue in the quarter was $667.1 million compared with $463.4 million in the prior-year period. Natural Gas and Pipeline revenue came in at $209.7 million compared with $263.1 million, Telecommunications revenue was $106.4 million compared with $117.7 million and Fiber Optic Licensing revenue was $27.8 million compared with $26.4 million.

Agreement of Estimate Revisions

In the last 30 days, out of the analysts providing estimates for the stock, one of the analyst decreased its estimate for the third quarter 2011. None of the analysts changed their estimate for 2011 and 2012.

In the last 7 days none of the analysts changed their estimate for third quarter or for 2011 and 2012.

Magnitude of Estimate Revisions

In the last 30 days, the earnings estimate for 2011 and 2012 remained unchanged while for third quarter decreased from 25 cents to 24 cents. In the last 7 days, none of the analysts have changed their estimate for third quarter or for 2011 and 2012.

Our Take

Telecommunication revenue in the third quarter is expected to be aided by broadband stimulus, 4G and LTE opportunities. The momentum is expected to build with future awards throughout the remainder of 2011 and 2012.

Quanta Services has been witnessing an increased customer spending as they have started to invest in infrastructure with the improving economic environment, leading the company to believe that it has overcome the worst phase of the recession. The company expects to benefit significantly from the ongoing bidding processes in its Natural Gas and Pipeline segment, leading to a continuous increase in the segment’s backlog.

However, in second-quarter 2011,continued delays in large diameter transmission pipeline work, primarily related to regulatory headwinds, declined Natural Gas and Pipeline segment revenue by 20.3%. In Telecommunication, increased bureaucracy and required environmental impact studies for broadband stimulus projects have slowed the start of some of the projects.

We continue to maintain a Neutral rating on Quanta Services for the long term. The company, however, has a Zacks #2 Rank (Buy recommendation) over the next one-to-three months.