Quanta Remains Well-Positioned to Benefit From Energy Transition Investments

Equity Analyst

Brett Castelli

Revenue segments as reported by the company.

Electric Power Infrastructure Solutions

Renewable Energy Infrastructure Solutions

Underground Utility and Infrastructure Solutions

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Quanta Services is a leading provider of specialty contracting services for customers in the utility, telecom, oil and gas energy, and renewable industries. Its strategic focus is positioning Quanta to take advantage of secular growth trends that drive increased demand for contracting services, such as electric grid investment and renewable energy deployment. The company has historically used acquisitions to supplement organic growth in achieving its strategy.

Quanta’s largest segment is electric power, which provides contracting services for transmission and distribution construction and maintenance for electric utilities. Through a combination of organic growth and acquisitions, Quanta has grown into the largest provider of T&D contracting services in the United States with approximately 15% market share. While Quanta is known for its differentiated capabilities with large electric transmission projects, its business has shifted toward more “base” activities in recent years.

In addition to macro trends highlighted above, we view the company as well situated to take advantage of the long-term trend of greater outsourcing by electric utilities, particularly within distribution, where the majority of work is still performed in-house by utilities today. Quanta’s telecom business is also found in this segment but represents less than 10% of segment revenue.

Quanta’s renewable energy segment consists largely of its 2021 acquisition of Blattner, a leading engineering, procurement, and construction provider for wind and solar projects. We look for this to be a new platform for the company and expect potential further acquisitions in adjacent energy transition areas. 

Quanta’s underground utility segment consists of a combination of gas utility, industrial, and oil and gas pipeline contracting services. We expect this segment to represent a shrinking portion of Quanta’s business in coming years, given stronger growth opportunities in its other businesses. Management’s key focus is on improving operating margins, which have lagged normalized levels in recent years.

Business Strategy & Outlook

We don't assign Quanta a moat. We believe the company is a leader among specialty contractors for electric transmission and distribution services as well as its newly acquired renewable engineering, procurement, and construction business. However, we have not seen its market share leadership translate to superior returns on invested capital relative to peers and see limited economic moats across our engineering and construction group coverage. 

We believe most engineering and construction firms lack moats because of intense competition, significant customer power, and the relatively standardized nature of most projects. Furthermore, E&C firms have to contend with cyclicality and event risk, which could be caused by a number of factors, including labor shortages, subcontractor performance, and inclement weather. While we view Quanta as more insulated from large-project risk than many of its E&C peers (only 10% of its business is from large projects), many of the same industry dynamics are still present. 

Quanta’s electric power segment (69% of estimated 2022 operating profit) consists primarily of construction and maintenance of electric transmission and distribution assets for utilities. Quanta has assembled a nationwide footprint through a combination of acquisitions and organic growth in a market largely consisting of private regional and local competitors. Quanta’s market share of relevant utility spending is estimated to be nearly 15%, 3 times the next-largest competitor's in a relatively fragmented competitive landscape.

Despite Quanta’s leading market share, we do not believe its electric power segment has a moat. We view its strongest competitive position to be in constructing large electrical transmission projects with greater technical and financial requirements. However, this is expected to remain a minority of the segment’s operating profit for the foreseeable future. This has led to a greater percentage of business from its base activities—smaller new construction and maintenance service agreements, or MSAs. We see a level of moatiness with this business associated with switching costs—programmatic spending with multiyear investment timelines prioritizes efficiency over the lowest cost provider. However, there are limited contractual protections associated with MSAs and utilities’ heavy regulatory oversight may limit concentration from one provider.

Quanta’s renewable power infrastructure segment consists of its 2021 acquisition of Blattner, a leading EPC for wind and solar projects. We estimate Blattner’s market share to be approximately 30% for wind and 10%-15% for solar, positioning it at the top of the renewable EPC industry. We see the wind EPC business as offering potential competitive advantages given greater project complexity and larger average project sizes. However, we expect Blattner’s business to shift toward mostly solar in the coming years, where we believe the competitive playing field is more level. Solar projects tend to be relatively simple to construct compared with other technologies, leading to lower barriers to entry. 

Quanta’s underground utility segment serves customers in the gas utility, oil and gas pipeline, and industrial industries. We believe this segment possesses the weakest competitive position of its three segments. This is evidenced by operating margins that have consistently lagged its other segments and peers.

None

Economic Moat

Quanta Services

Quanta Services, Inc. is engaged in the provision of specialty contracting services, offering infrastructure solutions to the electric power, oil and gas, and communication industries. It is operated through the following segments: Electric Power Infrastructure Services, and Underground Utility & Infrastructure Solutions. The Electric Power Infrastructure Services segment provides network solutions to customers in the electric power industry. The Underground Utility & Infrastructure Solutions segment offers comprehensive infrastructure solutions to customers involved in the development, transportation, distribution, storage and processing of natural gas, oil and other products. The company was founded by Kevin D. Miller, Steven P. Colmar, William G. Parkhouse and John R. Colson on August 19, 1997, and is headquartered in Houston, TX.

Earnings data Q2 2023

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Quanta Services, Inc. engages in the provision of comprehensive infrastructure solutions to the electric power, oil and gas, and communication industries. It operates through the following segments: Electric Power Infrastructure Solutions, Renewable Energy Infrastructure Solutions, and Underground Utility and Infrastructure Solutions. The Electric Power Infrastructure Services segment provides network solutions to customers in the electric power industry. The Renewable Energy Infrastructure Solutions focuses on comprehensive infrastructure solutions to customers that are involved in the renewable energy industry. The Underground Utility and Infrastructure Solutions segment offers comprehensive infrastructure solutions to customers involved in the development, transportation, distribution, storage and processing of natural gas, oil and other products. The company was founded by Kevin D. Miller, Steven P. Colmar, William G. Parkhouse and John R. Colson on August 19, 1997, and is headquartered in Houston, TX.

Shares of Quanta Services Inc. PWR, -2.56% gained 0.8% in premarket trading after the provider of infrastructure services for utilities and energy companies set a new $500 million stock repurchase program. The new program represents 2.1% of the company's market capitalization of $24.19 billion at Tuesday's close.

Quanta Services stock gains after setting new $500 million stock buyback program

HOUSTON , May 24, 2023 /PRNewswire/ -- Quanta Services, Inc. (NYSE: PWR) announced today that its Board of Directors has declared a quarterly cash dividend to stockholders of $0.08 per share, or a rate of $0.32 per share on an annualized basis. The dividend is payable on July 14, 2023, to stockholders of record as of July 3, 2023.

QUANTA SERVICES ANNOUNCES QUARTERLY CASH DIVIDEND AND NEW $500 MILLION STOCK REPURCHASE PROGRAM

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KeyBanc Capital Markets Industrials & Basic Materials Conference Bernstein Strategic Decisions Conference Baird Global Consumer, Technology & Services Conference HOUSTON , May 16, 2023 /PRNewswire/ -- Quanta Services, Inc. (NYSE:PWR) announced today that company management will participate in several institutional investor conferences in May and June, including the KeyBanc Capital Markets Industrials & Basic Materials Conference, the Bernstein Strategic Decisions Conference and the Baird Global Consumer, Technology & Services Conference.  KeyBanc Capital Markets Industrials & Basic Materials Conference Duke Austin, Chief Executive Officer, Jayshree Desai , Chief Financial Officer and Kip Rupp , Vice President – Investor Relations, will meet with institutional investors during the conference on May 31, 2023.

Quanta Services to Participate in Several Institutional Investor Conferences in May and June

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Demonstrates the Power of Quanta's Industry-Leading and Comprehensive High-Voltage Electric Transmission and Renewable Generation Solutions Projects are Additive to Quanta's Multi-Year Visibility and Growth Opportunity The SunZia Wind and SunZia Transmission Projects Are Designed to Produce and Transport Wind Power to Consumers in the Western United States and Represent the Largest Renewable Energy Project in United States History HOUSTON , May 4, 2023 /PRNewswire/ -- Quanta Services, Inc. (NYSE: PWR) announced today that it has been selected by Pattern Energy Group LP (Pattern Energy) to provide comprehensive infrastructure solutions for the SunZia Transmission and SunZia Wind projects, which together represent the largest clean energy infrastructure project in United States history. Demonstrating the Power of One and its substantial scope and scale, Quanta will leverage the capabilities of multiple operating companies to execute these projects for Pattern Energy.

Quanta Services Selected for the SunZia Transmission and SunZia Wind Projects

Announces Quanta and Hitachi Energy will provide comprehensive infrastructure solutions for the SunZia Transmission and Wind project ALBUQUERQUE, N.M. , May 4, 2023 /PRNewswire/ -- Pattern Energy Group LP (Pattern Energy), a leader in renewable energy and transmission infrastructure, announced it has selected Quanta Services, Inc. (NYSE: PWR) and Hitachi Energy to build its SunZia Transmission and Wind project, which will enable access to over 3,500 MW of New Mexico wind power, providing clean, reliable, and affordable electricity across Western states.

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First  Quarter Consolidated Revenues of $4.43 Billion* First  Quarter GAAP Diluted EPS of $0.64 and Adjusted Diluted EPS of $1.24 Net Income Attributable to Common Stock of $95.0 Million and Adjusted EBITDA of $332.4 Million Remaining Performance Obligations of $10.3 Billion* and Total Backlog of $25.3 Billion* Raising Full-Year 2023 Revenue Expectations and Reiterating Full-Year 2023 EPS Expectations * = Record quarterly or record first quarter result HOUSTON , May 4, 2023 /PRNewswire/ -- Quanta Services, Inc. (NYSE: PWR) today announced results for the three months ended March 31, 2023. Revenues in the first quarter of 2023 were $4.43 billion compared to revenues of $3.97 billion in the first quarter of 2022, and net income attributable to common stock was $95.0 million, or $0.64 per diluted share, in the first quarter of 2023 compared to net income attributable to common stock of $84.6 million, or $0.57 per diluted share, in the first quarter of 2022.

QUANTA SERVICES REPORTS FIRST QUARTER 2023 RESULTS

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Quanta Services, Inc. (NYSE:PWR ) Q4 2022 Earnings Conference Call February 23, 2023 9:00 AM ET Company Participants Kip Rupp - Vice President of Investor Relations Duke Austin - President and CEO Jayshree Desai - CFO Conference Call Participants Alex Rygiel - B. Riley Securities Neil Mehta - Goldman Sachs Justin Hauke - Robert W.

Quanta Services, Inc. (PWR) Q4 2022 Earnings Call Transcript

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