Quanta Services Continues 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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An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX.

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Quanta Services is a leading specialty contractor 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 midteens 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 normal levels in recent years.

Business Strategy & Outlook

We don't assign Quanta a moat rating. 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 (typically 10% of its business is from large projects), many of the same industry dynamics are still present. 

Quanta’s electric power segment (54% of 2023 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 2021

Earnings data Q3 2021

Earnings data Q4 2021

Earnings data Q1 2022

Earnings data Q2 2022

Earnings data Q3 2022

Earnings data Q4 2022

Earnings data Q1 2023

Earnings data Q2 2023

Earnings data Q3 2023

Earnings data Q4 2023

Earnings data Q1 2024

Quanta Services reports record Q1 revenues and addresses industry challenges

Quanta Services delivered strong financial results in Q1 2023, with record revenues and a substantial backlog. The company faces challenges related to electric vehicle penetration and grid constraints but is confident in its ability to handle growing demand. Quanta is strategically positioned to capitalize on opportunities in clean energy infrastructure and telecom sectors.

Quanta Services Achieves Record Revenues, Expands Full-Year Outlook

Quanta Services delivered exceptional financial performance, with strong demand across its operations and an increased full-year outlook. The company's focus on scalability, execution, and investments in technology positions it well for future growth. However, challenges related to interconnection bottlenecks and energy storage projects may impact the business.

Quanta Services reports record Q3 revenues, eyes double-digit growth in 2024

Quanta Services delivered robust financial performance in Q3 2023, driven by strong revenue growth and strategic initiatives. While the company faces challenges related to project mix and market dynamics, it remains focused on sustaining margins and pursuing growth opportunities in the renewable and electric segments. With a healthy backlog and raised revenue expectations, Quanta Services is well-positioned for continued success.

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Quanta Services, Inc. engages in the provision of comprehensive infrastructure solutions to the electric power, oil and gas, communication, pipeline, and energy industries. It operates through the following segments: Electric Power, Renewable Energy, and Underground and Infrastructure. The Electric Power segment provides services for the electric power and communications markets. The Renewable Energy segment is involved in providing infrastructure solutions to customers involved in the renewable energy industry. The Underground and Infrastructure segment offers infrastructure solutions to customers involved in the transportation, distribution, storage, development, 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.

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