Quanta Services Inc. (PWR Quick QuotePWR - Free Report) is well poised for 2022 and beyond, given customers’ increasing focus on grid modernization programs to accommodate a changing fuel generation mix toward natural gas and renewables and address the aging infrastructure.

Shares of the company have gained 36.7% over the past year, outperforming the industry’s 5.4% growth. Also, it has outperformed the S&P 500’s 7.7% rally and the broader Zacks Construction sector’s 7.1% decline in the said period. The company’s price performance was mainly driven by a solid performance.

Recently, PWR ended 2021 on a solid note. Earnings and revenues increased 26.2% and 34.7%, respectively, for fourth-quarter 2021. Earnings beat the consensus mark for the seventh straight quarter, whereas revenues surpassed the same in four out of seven consecutive quarters. Meanwhile, despite the global pandemic, Quanta delivered four consecutive years of record adjusted EBITDA and five consecutive years of record adjusted EPS. Overall, a solid contribution from its Electric Power and Renewable Energy Infrastructure Solutions operations and acquisitions during the year led to record results for 2021.

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Yet, COVID-19 impacts, regulatory challenges and risks like project delays are concerns.

Let’s delve deeper into the factors supporting this Zacks Rank #3 (Hold) company’s growth trajectory. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Robust Prospects: Going forward, Quanta will have plenty of opportunities as customers are increasingly pursuing strategies to reduce their carbon footprint and transitioning their operations and assets toward greener business opportunities. For example, gas utilities are implementing system modernization initiatives to reduce methane emissions, and that position them to blend hydrogen into their natural gas flow and certain refiners. Utilities and developers are building renewable natural gas and biofuel processing facilities. The company has been actively pursuing sizable carbon sequestration projects.

Also, PWR increased communications services revenues by 25% and ended 2021 with a record communications total backlog of approximately $1.3 billion. The company has been witnessing solid communication revenues, included within the Electric Power segment, mainly from U.S. operations. U.S. telecom revenues have been strong since 2017, when the company officially reentered into the U.S. telecommunications market. Quanta continues to make inroads with customers as they deploy capital for fiber-to-the-home and business, long-haul fiber and the early stages of 5G. It has been developing and rolling out wireless infrastructure solutions to strengthen opportunities to capitalize on 5G network deployment and ongoing enhancement of 4G wireless networks. Owing to strong demand, the company expects double-digit revenue growth and a return to upper single-digit operating income margin for communications operations in 2022.

The Zacks Consensus Estimate for 2022 earnings has moved 1.9% higher over the past 30 days, depicting analysts’ optimism over the company’s prospects. The earnings projection calls for 27.9% year-over-year growth for 2022.

Solid Backlog: PWR ended 2021 with a total backlog of $19.27 billion and a 12-month backlog of $11.31 billion. This compares favorably with $15.13 billion of total backlog and $8.27 billion of 12-month backlog a year ago. This demonstrates the strength of its core operations. Quanta’s optimism stems from a healthy backlog level, which is expected to grow further.

Acquisitions: Quanta acquired a premier utility-scale renewable energy infrastructure solutions provider in North America — Blattner — in October 2021. This buyout marked the largest acquisition to date for Quanta. In addition, it positioned Quanta to be a leader in the energy transition and enhanced its ability to collaborate with customers on their energy transition strategies.

In addition to the Blattner buyout, Quanta invested $350 million in strategic acquisitions of nine high-quality companies in 2021, which primarily supports its electric power and front-end service solutions.

Quanta follows an inorganic strategy to boost market share and develop incremental backlog.

Headwinds

Quanta remains vulnerable to COVID-19 impacts, regulatory challenges and risks like project delays. The Underground Utility and Infrastructure Solutions segment faced challenges in 2021, primarily due to circumstances outside control such as impacts from the global pandemic, work disruptions along the Gulf Coast due to hurricane and impact on results from a customer bankruptcy. These impacted core revenues and margins during 2021.

The company’s communications operations witnessed negative margins during fourth-quarter 2021 due to challenges experienced in certain regions.

Additionally, as a large chunk of Quanta’s business involves outdoor activities, it is vulnerable to unfavorable weather conditions. Traditionally, PWR experiences lower gas distribution business activity in the first quarter due to seasonal weather, which impacts revenues and puts pressure on margins.

Some Better-Ranked Stocks in the Construction Sector

Simpson Manufacturing Co., Inc. (SSD Quick QuoteSSD - Free Report) currently carries a Zacks Rank #1. The company’s shares have increased 6.9% in the past year.

Simpson Manufacturing’s earnings for 2022 are expected to rise 5.9%.

James Hardie Industries plc (JHX Quick QuoteJHX - Free Report) currently holds a Zacks Rank #2 (Buy). JHX’s shares have gained 5.8% in the past year.

James Hardie’s earnings are expected to rise 37.9% in fiscal 2022.

Owens Corning (OC Quick QuoteOC - Free Report) currently carries a Zacks Rank #2. The company’s shares have declined 3.8% in the past year. Earnings estimates for 2022 have moved up 10.3% over the past 30 days, depicting analysts’ optimism over the company’s prospects.

Earnings for OC are expected to increase 14.2% in 2022.