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Quanta Services Rides on Acquisitions, Project Delays Hurt
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Quanta Services, Inc. (PWR - Free Report) is focused on its three-pronged growth strategy for delivering energized services to customers. The company’s strength in Electric Power and Oil & Gas segments bodes well for future prospects. However, inadequate resource utilization, regulatory challenges, as well as risks like project delays, stiff competition, and volatility in the oil and gas market raise concerns.
Key Growth Drivers
Strategic Growth Initiatives: Quanta Services is pursuing a three-pronged growth strategy that focuses on timely delivery of projects to exceed customer expectation; leveraging on core business to expand in complementary adjacent service lines; and continuously exploring new service lines. Recently, the company has undertaken many industry-leading strategic initiatives such as the opening of a world-class training facility in Texas and acquisition of Northwest Lineman College. Quanta Services sees acquisitions as a fundamental component of its strategy to boost market share and develop incremental backlog. As of Jun 30, 2018, Quanta Services’ 12-month record backlog was $7,437.5 million, up 15.4%.
Going forward, the company expects a rebound in its end markets, as it enters a renewed multiyear up-cycle for businesses. Quanta Services, which shares space in the Zacks Engineering - R and D Services industry with Jacobs Engineering Group Inc. , Fluor Corporation (FLR - Free Report) and KBR, Inc. (KBR - Free Report) , remains confident about the prospects of end markets in both of its segments, namely Electric Power and Oil & Gas.
Strong Segmental Prospects: Quanta Services’ Electric Power and Oil & Gas segments remained strong during the first six months of 2018. Revenues from Electric Power segment increased 24.5% year over year, while that of Oil and Gas segment grew 4.1% in the said period.
Prospects of the Electric Power segment remain robust, as the company recently signed a contract to construct the Ontario East-West Tie Line Project for NextBridge. Alongside, it has won a large transmission project in South Florida to offer construction services. Moreover, the company secured two large diameter mainline pipeline projects in the United States’ Appalachian region. Quanta Services is currently in talks regarding multi-year capital programs, comprising both larger and smaller electric power infrastructure projects that are designed to upgrade and modernize the grid.
Outlook of Quanta Services’ Oil and Gas segment looks equally promising, primarily due to improving mainline and natural gas distribution, and integrity markets. The company expects strong performance from the pipeline projects, driven by a considerable increase in large pipeline revenue contributions amid an active bidding and negotiating environment. In addition, the company’s infrastructure services business continues to flourish, supported by robust demand from communications industry. Quanta Services plans to grow its infrastructure solutions capabilities via strategic partnerships with customers and capital partners.
In a nutshell, the company is poised to gain from end-market prospects in both of its segments.
Causes of Concern
Lower Contribution of A Larger Project: In first-quarter 2018, the company’s revenues of Oil and Gas Infrastructure Services segment declined 11.4% from year ago quarter. The decline was to reduced capital spending by its customers on large diameter pipeline projects. Even the segment’s operating margins declined in the first as well second quarter of 2018, due to inadequate resource utilization and a lower proportion of larger diameter pipeline projects that typically yield higher margins. The impact of severe weather on certain ongoing projects also resulted in lower productivity. Also, unfavorable timing of revenues and corresponding income contributions of certain projects have been adding to the company’s woes.
Project Delays: Quanta Services deals with many large projects that are inherently prone to weaknesses such as irregular start-ups, delays and sudden stoppage during work. Intensive regional competition and delay in the bidding activity of transmission projects are headwinds, which might hurt the performance of this segment, going forward.
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Quanta Services Rides on Acquisitions, Project Delays Hurt
Quanta Services, Inc. (PWR - Free Report) is focused on its three-pronged growth strategy for delivering energized services to customers. The company’s strength in Electric Power and Oil & Gas segments bodes well for future prospects. However, inadequate resource utilization, regulatory challenges, as well as risks like project delays, stiff competition, and volatility in the oil and gas market raise concerns.
Key Growth Drivers
Strategic Growth Initiatives: Quanta Services is pursuing a three-pronged growth strategy that focuses on timely delivery of projects to exceed customer expectation; leveraging on core business to expand in complementary adjacent service lines; and continuously exploring new service lines. Recently, the company has undertaken many industry-leading strategic initiatives such as the opening of a world-class training facility in Texas and acquisition of Northwest Lineman College. Quanta Services sees acquisitions as a fundamental component of its strategy to boost market share and develop incremental backlog. As of Jun 30, 2018, Quanta Services’ 12-month record backlog was $7,437.5 million, up 15.4%.
Going forward, the company expects a rebound in its end markets, as it enters a renewed multiyear up-cycle for businesses. Quanta Services, which shares space in the Zacks Engineering - R and D Services industry with Jacobs Engineering Group Inc. , Fluor Corporation (FLR - Free Report) and KBR, Inc. (KBR - Free Report) , remains confident about the prospects of end markets in both of its segments, namely Electric Power and Oil & Gas.
Strong Segmental Prospects: Quanta Services’ Electric Power and Oil & Gas segments remained strong during the first six months of 2018. Revenues from Electric Power segment increased 24.5% year over year, while that of Oil and Gas segment grew 4.1% in the said period.
Prospects of the Electric Power segment remain robust, as the company recently signed a contract to construct the Ontario East-West Tie Line Project for NextBridge. Alongside, it has won a large transmission project in South Florida to offer construction services. Moreover, the company secured two large diameter mainline pipeline projects in the United States’ Appalachian region. Quanta Services is currently in talks regarding multi-year capital programs, comprising both larger and smaller electric power infrastructure projects that are designed to upgrade and modernize the grid.
Outlook of Quanta Services’ Oil and Gas segment looks equally promising, primarily due to improving mainline and natural gas distribution, and integrity markets. The company expects strong performance from the pipeline projects, driven by a considerable increase in large pipeline revenue contributions amid an active bidding and negotiating environment. In addition, the company’s infrastructure services business continues to flourish, supported by robust demand from communications industry. Quanta Services plans to grow its infrastructure solutions capabilities via strategic partnerships with customers and capital partners.
In a nutshell, the company is poised to gain from end-market prospects in both of its segments.
Causes of Concern
Lower Contribution of A Larger Project: In first-quarter 2018, the company’s revenues of Oil and Gas Infrastructure Services segment declined 11.4% from year ago quarter. The decline was to reduced capital spending by its customers on large diameter pipeline projects. Even the segment’s operating margins declined in the first as well second quarter of 2018, due to inadequate resource utilization and a lower proportion of larger diameter pipeline projects that typically yield higher margins. The impact of severe weather on certain ongoing projects also resulted in lower productivity. Also, unfavorable timing of revenues and corresponding income contributions of certain projects have been adding to the company’s woes.
Project Delays: Quanta Services deals with many large projects that are inherently prone to weaknesses such as irregular start-ups, delays and sudden stoppage during work. Intensive regional competition and delay in the bidding activity of transmission projects are headwinds, which might hurt the performance of this segment, going forward.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>