It has been about a month since the last earnings report for Quanta Services (PWR - Free Report) . Shares have added about 14.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Quanta Services due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Quanta Beats on Q2 Earnings, Lifts EPS & Cash Flow View
Quanta Services Inc. reported impressive earnings for second-quarter 2020. Adjusted earnings not only surpassed the Zacks Consensus Estimate but also grew impressively on a year-over-year basis. Revenues, however, missed analysts’ expectation and declined from a year ago.
In the quarter under review, Quanta reported adjusted earnings of 74 cents per share that comfortably topped the consensus estimate of 48 cents by 54.2% and increased an impressive 138.7% from the year-ago profit level of just 31 cents.
Total revenues of $2.51 billion missed the consensus mark of $2.54 billion by 1.2% and decreased 11.7% year over year due to lower contribution from its Pipeline and Industrial Infrastructure Services segment.
Operating margin for the quarter rose 170 bps from a year ago to 4.5%. Adjusted EBITDA of $214.2 million improved 29.4% from $165.6 million a year ago.
The company reported 12-month backlog of $7.66 billion and total backlog of $13.93 billion at June-end. At June 2019-end, 12-month backlog came in at $7.48 billion and total backlog was $12.77 billion. However, the reported metrics were down from 2019-end respective figures of $7.95 billion and $15 billion.
The company reports results under two reportable segments: Electric Power Infrastructure Services segment (accounting for 71.5% of revenues), and Pipeline and Industrial Infrastructure Services (28.5%).
Revenues from Electric Power Infrastructure Services totaled $1,792.9 million, increasing 3.4% year over year. Operating margins expanded 490 basis points (bps) to 10.3%. The segment’s 12-month backlog was $5.34 billion, up from $4.96 billion a year ago. Total backlog of $9.68 billion also grew from $8.69 billion reported in the prior-year quarter.
Within the Pipeline and Industrial Infrastructure Services segment, revenues declined 35.4% from the prior-year quarter to $713.3 million. Operating margin of 3% also contracted 330 bps year over year. Segment’s 12-month backlog totaled $2.32 billion, down from $2.52 billion a year ago. Total backlog, however, grew to $4.24 billion from $4.1 billion in the prior year.
As of Jun 30, 2020, Quanta Services had cash and cash equivalents of $530.7 million compared with $164.8 million at 2019-end. The company’s long-term debt (net of current maturities) amounted to $1,315.6 million, up from $1,292.2 million as of Dec 31, 2019.
Net cash provided by operating activities was $497.5 million for the quarter versus $108.7 million cash used in operating activities in the prior-year period. Free cash flow was $457.2 million for the quarter versus negative free cash flow of $172.9 million a year ago. On Jun 30, 2020, Quanta Services had total liquidity of $2.1 billion, significantly up from $1.7 billion at March-end.
Recently, the company’s board of directors authorized it to repurchase $500 million shares through Jun 30, 2023 of its outstanding common stock under a new repurchase program. As of Aug 5, it had bought back approximately 13 million shares under the prior authorization for an aggregate amount of $413.2 million.
Updates 2020 Guidance
The company now expects revenues in the range of $11-$11.4 billion versus prior expectation of $11.4-$11.8 billion ($12.11 billion reported a year ago). It expects adjusted earnings between $3.18 and $3.48 per share compared with $3.04-$3.36 expected earlier. The mid-point of the current projection is in line with the year-ago figure of $3.33 per share. Adjusted EBITDA is projected within $903-$964 million versus $860-$925 billion of prior projection. This indicates a decrease from $941.8 million reported in 2019. Notably, Quanta increased full-year non-GAAP free cash flow projection to $600-$800 million from $400-$600 million anticipated earlier.
Importantly, the above-mentioned projections are inclusive of the expected results from its LATAM operations. LATAM operations are expected to generate revenues of $20-$30 million. Operating loss of $40-$45 million and a loss of 28-31 cents per share are also expected from the same.
In June, the company’s joint venture company, LUMA Energy, LLC (equally owned by Quanta and Canadian Utilities Limited arm ATCO Ltd.), was selected by the Puerto Rico Public-Private Partnership Authority for a 15-year Operation and Maintenance Agreement with the Puerto Rico Electric Power Authority or PREPA. LUMA, together with Innovative Emergency Management, Inc., operates, maintains and modernizes PREPA’s more than 18,000-mile electric transmission and distribution system in Puerto Rico.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, Quanta Services has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Quanta Services has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.