Quanta's Outlook Electrifies the Stock

Feb.22.10 | About: Quanta Services (PWR)

Quanta Services (NYSE:PWR), the world’s largest builder of power lines, reported fourth-quarter profits of $43.9 million or 21 cents per share, which easily exceeded the consensus analysts’ estimate of $.17 per share. Were it not for expenses related to an acquisition, Quanta would have earned $.31 per share. Sales of $985.4 million were 6.9% better than a year ago, and analysts were expecting essentially flat sales in the quarter. Revenue results were aided by Quanta’s acquisition of Price Gregory Services last year whose operations merged with Quanta’s on October 1st last year. Clearly the last quarter was better than most had anticipated, but their CEO said Quanta was still hampered by general economic weakness.

Quanta offered guidance for the first quarter that was a disappointment from what analysts were expecting. For the current quarter, Quanta anticipates profit of 7 cents per share on about $700-$750 million in revenue. Estimates had pegged the company at twice that earnings per share number on sales of $837 million. However, the full year outlook calls for aPWR meaningful recovery to begin in the second half. For the full year, management believes earnings will come in at $.90 to $1 per share on sales of $3.9-$4.2 billion. That outlook is stronger than Wall Street expected and has more than made up for the weak projections for the current quarter. Quanta shares are trading nearly 8% higher in afternoon trading thanks to the outlook and earnings beat.

At Ockham, we have a neutral or Fairly Valued rating on PWR as of this week’s report. The current price-to-sales and price-to-cash earnings metrics are within their historically normal ranges. The full year outlook does sound encouraging but we put more stock into the current quarter’s guidance because there is obviously more visibility for management to make their projections.

We do think that Quanta will benefit from the need for electricity infrastructure improvements, and they will likely benefit from many green energy initiatives. At this point though, they are not seeing as much activity as hoped. For long term investors, we would not advise buying following today’s run-up, and the weakness in the first quarter does give us pause.

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