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How Would You Value Quanta Services Inc.?

|Includes: Quanta Services Inc. (PWR)

Original article here: http://bit.ly/1XH1cbZ

Quanta Services Inc. (NYSE:PWR) has been in the news lately: its stock fell by over 6% today (as of the writing of this article) on below-average volumes. I skimmed through the new headlines and did not notice anything significant going on in the company. A few articles were bullish on the stock, while Zacks's analysts have given a short term rating of strong sell on the Quanta's shares with no apparent reason. I decided to go over the company's financials and presentations. I also want readers to rate Quanta's stock themselves.

Quanta Services, Inc. (Quanta) is a provider of specialty contracting services, offering infrastructure solutions primarily to the electric power and natural gas and oil pipeline industries. The services the Company provides include the design, installation, upgrade, repair and maintenance of infrastructure within each of the industries the Company serves, such as electric power transmission and distribution networks, substation facilities, renewable energy facilities and pipelines transmission, gathering and distribution systems and facilities. It operates in three segments: electric power infrastructure services, natural gas and pipeline infrastructure services and fiber optic licensing and other (Source: corporate website)

Ok, now let us turn to the recent 10-Q report:

(Source: 10-Q Report)

We can see that revenues are down both on the quarter-on-quarter and year-over-year bases. Moreover, the biggest hit took place in the recent quarter: revenues are down by 10% vs. less than 1% for year-over-year. The company generated substantially lower operating profit and net income margins in the last three months that for the same period last fiscal year. The bad results were significantly offset by income from discontinued operations - that is, income from an asset the have has successfully sold:

(Source: November/December Investor Presentation)

From the above slide, it looks like Quanta got a very good deal on the sale of its Fiber Optic business. The recent cash flow statement shows that most of the money went into repurchasing share, which a good thing (unless the management knows better ways to employ the cash):

(Source: 10-Q Report)

Despite the falling revenues and margins, Quanta actually managed to improve its cash flows this year compared to the previous period:

(Source: 10-Q Report)

Although the expected numbers for FY 2015 are expected to be marginally lower:

(Source: November/December Investor Presentation)

...The company is actually turning more profitable from a cash flow standpoint:

(Source: November/December Investor Presentation)

I know that the company is somewhat exposed to the energy market, and its revenues are dependent on the sector's CapEx:

(Source: November/December Investor Presentation)

...But I am not sure if investors are adequately assessing the energy market's impact on the company's operations.

Am I missing something? How would you value Quanta Services? Keep in mind that the stock's price is only about 30%+ above the 2011 lows, even though the company is the "transition year" and promises to improve results in 2016 and onward.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.