Infrastructure activity in the public sector is likely to rise as the Biden administration has approved the much-awaited bipartisan agreement to rebuild the nation's roads, bridges and other infrastructure. In addition to improving non-residential construction, low interest/mortgage rates, an improving job market and solid GDP numbers will likely benefit the Zacks Engineering - R and D Services industry.

One of the industry’s largest contractors serving the transmission and distribution sector of the North American electric utility industry, Quanta Services Inc. (PWR Quick QuotePWR - Free Report) is likely to gain from the above-mentioned tailwinds. Also, it has been benefiting from focus on the base business, long-term programmatic spend of utilities, and the development of infrastructure that supports technology deployments such as 5G as well as electric vehicles.

Over a year, Quanta has gained almost 135%, outperforming the industry’s 90.6% rally. Also, it has outperformed peers like KBR, Inc. (KBR Quick QuoteKBR - Free Report) , Jacobs Engineering Group Inc. (J Quick QuoteJ - Free Report) and Fluor Corporation’s (FLR Quick QuoteFLR - Free Report) 78.6%, 69.4% and 36.2% rally, respectively, in the said period.

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This Zacks Rank #2 (Buy) company’s price performance was mainly driven by a solid earnings surprise history, having surpassed the Zacks Consensus Estimate in six of the trailing seven quarters. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Let’s delve deeper.

Strong Transmission & Distribution Business: Quanta has been riding high on strong transmission and distribution business. Its three-pronged growth strategy — primarily focusing on timely delivery of projects to exceed customer expectation, leveraging core business to expand in complementary adjacent service lines and continuation of exploring new service lines — is commendable.

For first-quarter 2021, Quanta reported adjusted earnings of 83 cents per share, which increased 76.6% from a year ago owing to improved margins. Margins were backed by increased contributions from emergency restoration efforts, the LUMA joint venture, and solid execution across much of its base business activity including gas distribution as well as industrial services.

At quarter-end, the company reported 12-month backlog of $8,932.1 million and total backlog of $15,830.3 million. At December 2020-end, 12-month backlog came in at $8,266.6 million and total backlog was $15,132.4 million. At March 2020-end, the figures came in at $7,594.5 million and $14,732.4 million, respectively.

Electric Power Business, a Boon: The company continues to properly execute Electric Power operations from a top-line perspective. Segment revenues for first-quarter 2021, which include revenues from base business activities including communications operations, grew 16.6% from the year-ago level. The 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. Also, contributions from larger transmission projects underway in Canada and revenues from acquired businesses of approximately $70 million aided the company.

Prospects of the Electric Power segment remain robust, given customers’ investment in grid modernization programs to accommodate a changing fuel generation mix toward natural gas and renewables, intended to address the aging infrastructure, strengthen systems for resiliency against extreme weather conditions and support long-term economic growth. As of Mar 31, 2021, the segment’s 12-month backlog was $6.4 billion and total backlog was $11.7 billion, up from $5.3 billion and $9.65 billion, respectively, in the corresponding year-ago period.

Inorganic Moves: Quanta has been investing in new businesses through acquisitions to boost market share and backlog. In first-quarter 2021, the company acquired a U.S.-based business that primarily provides horizontal directional drilling services.

In 2020, it acquired seven businesses that primarily serve electric and gas utilities along with communications companies. Quanta invested approximately $400 million in 2020 for strategic acquisition of seven high quality companies with great management teams, which enhanced its ability to provide solutions to customers. These are additive to the base business and advance the company’s strategic initiatives.

Impressive Guidance & Analysts’ Views: Backed by strong quarterly performance and solid visibility, Quanta expects 2021 revenues between $12.05 billion and $12.35 billion, indicating an increase from $11.2 billion generated in 2020. Adjusted earnings are expected between $4.12 and $4.57, suggesting growth from $3.82 per share reported in 2020. Adjusted EBITDA is projected within $1.10-$1.20 billion. The current projection indicates 10% year-over-year growth at the mid-point. The solid expectation for 2021 is supported by a reduced annual tax rate of 25.25-25.75%.

Bottom-line estimates for 2021 have moved 1.1% upward to $4.42 per share over the past 60 days, indicating 15.7% year-over-year growth. Focus on the base business, long-term programmatic spend of utilities and technology deployments position it well for the future.

Higher ROE & VGM Score: Quanta’s return on equity (ROE) is indicative of growth potential. The company’s ROE of 12.7% compares favorably with the industry average of 6.3%, implying that it is efficient in using shareholders’ funds.

Also, it has a solid VGM Score of B. Our research shows that stocks with VGM Scores of A or B when combined with a Zacks Rank #1 or 2 have the highest probability of success.