Quanta Services (PWR) Down 24.3% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Quanta Services (PWR). Shares have lost about 24.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Quanta Services due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Quanta Services' (PWR) Q4 Earnings Beat Estimates

Quanta Services Inc (NYSE:PWR). reported impressive results in fourth-quarter 2019. Both the top and bottom lines surpassed the Zacks Consensus Estimate. However, adjusted earnings fell marginally on a year-over-year basis. Also, the company believes that strategic growth initiatives will help it post impressive results going forward.

Into the Numbers

In the quarter under review, the company reported adjusted earnings of 93 cents per share, beating the consensus estimate of 84 cents by 10.7%. However, the reported figure fell 3.1% from 96 cents per share reported a year ago.

Total revenues of $3.11 billion surpassed the consensus mark of $3.03 billion by 2.6%. In addition, the said metric grew marginally from the prior-year period. Revenue growth in the Electric Power Infrastructure Services segment was offset by softness in the Pipeline and Industrial Infrastructure Services business.

Segment Details

The company reports results under two reportable segments: Electric Power Infrastructure Services segment (accounting for 59.3%), and Pipeline and Industrial Infrastructure Services (40.7%).

Revenues from Electric Power Infrastructure Services totaled $1,847.4 million, increasing 11.3% year over year. However, operating margins contracted 110 basis points (bps) to 8.7%.

Within the Pipeline and Industrial Infrastructure Services segment, revenues declined 12.9% from the prior-year quarter to $1,265.4 million. However, operating margins of 7% improved 330 bps year over year.

Operating Highlights

Operating margin during the quarter contracted 10 bps from a year ago to 4.7%. Adjusted EBITDA of $262.3 million declined 4% from $273.3 million a year ago.

As of Dec 31, 2019, the company reported total backlog of $15 billion and 12-month backlog of $7.9 billion. This compares favorably with $12.3 billion of total backlog and $7 billion of 12-month backlog at 2018-end. Also, the reported metrics were up from third-quarter end respective figures of $13.3 billion and $7.6 billion.

Liquidity

As of Dec 31, 2019, Quanta Services had cash and cash equivalents of $164.8 million compared with $78.7 million at 2018-end. The company’s long-term debt and notes payable (net of current maturities) amounted to $1,292.2 million, up from $1,040.5 million as of Dec 31, 2018.

Net cash used in operating activities was $526.6 million in 2019 versus $358.8 million cash provided by operating activities in the prior year. Free cash flow was $297.9 million in the quarter versus $97.7 million a year ago.

2019 Highlights

In 2019, the company’s adjusted earnings came in at $3.31 per share, increasing 18.5% from the year-ago figure of $2.81 and surpassing analysts’ expectation of $3.25 by 1%. Revenues in the year totaled $12.11 billion, reflecting an increase of 8.4% year over year. Also, the metric surpassed the consensus mark of $12.03 billion by 0.7%.

Notably, the company completed seven acquisitions in 2019.

2020 Guidance

The company expects revenues in the range of $12.2-$12.6 billion. It expects adjusted earnings between $3.62 and $4.02 per share. Adjusted EBITDA is projected within $1.03-$1.12 billion, indicating a significant increase from $941.8 million reported in 2019.

Notably, the company completed a strategic review of its Latin American (LATAM) operations owing to the conditions experienced in Peru during 2019 and political volatility in other countries. In 2020, LATAM operations are expected to generate revenues within $20-$40 million, operating loss in the $15-$20 million range and loss per share in the band of 10-13 cents.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -35.57% due to these changes.

VGM Scores

At this time, Quanta Services has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Quanta Services has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.