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Analyst Blog

On May 5, 2013 we upgraded specialty contracting services and infrastructure solution provider, Quanta Services Inc. (PWR - Analyst Report) to Outperform based on its improved prospects. Quanta Services, which focuses on specialty contracting services, and is one of the largest contractors serving the transmission and distribution sector of the North American electric utility industry, became a Zacks Rank #2 (Buy) stock shortly after reporting impressive first quarter 2013 results.

Why the Upgrade?

First quarter 2013 non-GAAP earnings came in at 38 cents a share, up 31.0% from the Zacks Consensus Estimate of 29 cents a share. The reported figure was also 46.2% higher than the prior-year quarter. Over the past four quarters, Quanta Services has delivered an average surprise of 26.32%.

Following the release of first quarter results, the Zacks Consensus Estimate for 2013 earnings has gone up 1.4% to $1.46 per share.

What drives this strong positive bias on the company? Apart from impressive first quarter results, Quanta Services’ growth story looks compelling. Quanta Services is benefiting from strong demand for its services and continued solid project execution.

Quanta Services stands to gain from increased spending in the Electric Power segment. Projects necessitating the upgrade and deployment of electric power transmission infrastructure to improve system reliability and to deliver renewable electricity from new generation sources to demand centers are on the rise.

Favorable industry legislation is also generating incentives and a positive environment for utilities to invest in their electrical infrastructure, particularly transmission infrastructure. The company’s Electric Power segment continues to win large electric transmission projects and is expected to derive significant benefit from transmission build-out in the US and Canada, leading to strong backlog in 2012 and beyond. Total backlog at the end of 2012 stood at $7.2 billion.

In addition, Quanta’s Natural Gas and Pipeline Infrastructure Services segment and the Fiber Optic segments are also performing well.

Other Stocks to Consider

Besides Quanta Services, other stocks in the utilities and natural gas and pipeline sector that are currently performing well include Chicago Bridge & Iron (CBI - Analyst Report), Honeywell International Inc. (HON - Analyst Report) and ITT Corporation (ITT - Analyst Report), all having Zacks Rank #2 (Buy). 

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