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Quanta (PWR) Gains From Energy Transition Spree Amid Challenges

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Quanta Services Inc.’s (PWR - Free Report) shares have been riding high since the release of its first-quarter 2022 results. Ever since this Zacks Rank #3 (Hold) company reported quarterly numbers on May 5, its shares have risen 10.5%, outperforming the industry’s growth of 3.2%. The company has been capitalizing on the megatrends to lead the energy transition and enable technological development. Initiatives such as electric vehicle charging infrastructure and undergrounding of electrical infrastructure are gaining momentum. These factors have helped the company to gain 44% over the past year, outperforming the industry’s 0.7% rise.

Notably, Quanta reported robust financial numbers in first-quarter 2022. Adjusted earnings and revenues increased 65.1% and 47% year over year, respectively. This marked the eighth consecutive quarter of earnings beat. Moreover, revenues surpassed the Zacks Consensus Estimate in five out of eight consecutive quarters. Moreover, management now envisions earnings per share in the band of $6.00-$6.50 for 2022 compared with $4.90 per share reported in the year-ago period.
 

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However, Quanta remains vulnerable to COVID-19 impacts, regulatory challenges and risks like project delays and stiff competition.

Factors Favoring the Stock

Infrastructural Push for Energy Transition: 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.

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 to deliver a 10% organic adjusted EPS compound annual growth rate (“CAGR”) and more than 15% adjusted EPS CAGR through 2026.

The Zacks Consensus Estimate for 2022 earnings of $6.30 per share calls for 28.1% year-over-year growth.

Solid Backlog: The company ended first-quarter 2022 with a record total backlog of $20.5 billion and 12-month backlog of $11.5 billion. This compares favorably with $15.83 billion of total backlog and $8.93 billion of 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.

Strong Electric Power Operations: Electric Power operations continued to perform well from a top line perspective. Segment revenues, which comprise revenues from base business activities, including communications operations, grew 27.6% in first-quarter 2022, 17.9% in 2021 and 9.1% in 2020 from the comparable year-ago period. 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, as well as by gas utilities on distribution system modernization and safety programs.

As of Mar 31, 2022, the segment’s 12-month backlog was $6.38 billion and total backlog was $12.17 billion. 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 global pandemic-related impediments like project delays are undeniable and unavoidable. During first-quarter 2022, margins of Electric Power segment were slightly impacted by certain Canadian projects due to substantial COVID delays.

Factors like supply chain disruptions, inflation, COVID-19 and regulatory uncertainties are causes of concern.

3 Top-Ranked Construction Stocks Hogging the Limelight

Some top-ranked stocks, which warrant a look in the Construction sector, are Patrick Industries (PATK - Free Report) , Beazer Homes USA (BZH - Free Report) and NVR, Inc. (NVR - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Patrick Industries — sporting a Zacks Rank #1 — is a leading component solutions provider for the RV, marine, and manufactured housing industries. Patrick Industries, like many others in the broader RV and consumer marine space, is amid a massive run of revenue growth that began about a decade ago.

Patrick Industries’ expected earnings growth rate for 2022 is 33.1%. The Zacks Consensus Estimate for current-year earnings has improved 16.6% over the past 60 days.

Beazer Homes, carrying a Zacks Rank #2 (Buy), designs, builds and sells single-family homes. BZH designs homes that appeal primarily to entry-level and first move-up homebuyers. Beazer Homes USA’s objective is to provide customers with homes that have quality and value. BZH’s subsidiary, Beazer Mortgage, originates the mortgages for the company's homebuyers.

Beazer Homes’ expected earnings growth rate for fiscal 2022 is 48.9%. The Zacks Consensus Estimate for current-year earnings has improved 14.6% over the past 60 days.

NVR, also carrying a Zacks Rank #2, is engaged in the construction and sale of single-family detached homes, townhomes and condominium buildings, all of which are primarily constructed on a pre-sold basis. In order to serve homebuilding customers, NVR operates a mortgage banking and title services business.

NVR’s expected earnings growth rate for the current year is 68.4%. The Zacks Consensus Estimate for current-year earnings has improved 20.4% over the past 60 days.