Construction Stocks

Quanta Services Inc Valuation – February 2016 $PWR

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – February 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Quanta Services Inc (PWR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Quanta Services, Inc. (Quanta) is a provider of specialty contracting services, offering infrastructure solutions primarily to the electric power, and natural gas and oil pipeline industries. The Company operates in two segments, such as electric power infrastructure services, and oil and gas infrastructure services. The Electric Power Infrastructure Services segment provides network solutions to the electric power industry. Its Electric Power Infrastructure Services segment includes various services, such as design, installation and maintenance of electric power transmission and distribution infrastructure and substation facilities, among others. The Oil and Gas Infrastructure Services segment provides network solutions to customers of development and transportation of natural gas and oil. Its Oil and Gas Infrastructure Services segment include the design, installation and maintenance of pipeline transmission, distribution systems and gathering systems, among others.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of PWR

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $2,627,952,545 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.76 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 167.02% Pass
6. Moderate PEmg Ratio PEmg < 20 11.00 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.13 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.76 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.34 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

PWR value chart February 2016

EPSmg $1.59
MG Growth Estimate 15.00%
MG Value $61.37
Opinion Undervalued
MG Value based on 3% Growth $23.11
MG Value based on 0% Growth $13.55
Market Implied Growth Rate 1.25%
Current Price $17.54
% of Intrinsic Value 28.58%

Quanta Services Inc qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio and the lack of dividends.  The Enterprising Investor is only initially concerned by the lack of dividends.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.74 in 2011 to an estimated $1.59 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.25% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

Stage 3: Information for Further Research

PWR charts February 2016

Net Current Asset Value (NCAV) $0.87
Graham Number $29.36
PEmg 11.00
Current Ratio 1.76
PB Ratio 1.13
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

 

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Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Total Current Assets $2,362,664,000
Total Current Liabilities $1,340,538,000
Long-Term Debt $348,209,000
Total Assets $5,373,424,000
Intangible Assets $1,822,344,000
Total Liabilities $2,184,052,000
Shares Outstanding (Diluted Average) 206,193,000

Earnings Per Share History

Next Fiscal Year Estimate $1.88
Dec2014 $1.35
Dec2013 $1.87
Dec2012 $1.44
Dec2011 $0.62
Dec2010 $0.72
Dec2009 $0.81
Dec2008 $0.87
Dec2007 $0.89
Dec2006 $0.15
Dec2005 $0.25
Dec2004 -$0.08
Dec2003 -$0.30
Dec2002 -$7.77
Dec2001 $1.10
Dec2000 $1.42
Dec1999 $1.00
Dec1998 $0.59
Dec1997 $0.19

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.59
Dec2014 $1.37
Dec2013 $1.28
Dec2012 $0.96
Dec2011 $0.74
Dec2010 $0.76
Dec2009 $0.72
Dec2008 $0.59
Dec2007 $0.36
Dec2006 -$0.46
Dec2005 -$0.96
Dec2004 -$1.42
Dec2003 -$1.70
Dec2002 -$1.84
Dec2001 $1.04
Dec2000 $0.88
Dec1999 $0.53

Recommended Reading:

Other ModernGraham posts about the company

5 Undervalued Companies with a Low Beta – January 2016
The Best Companies of the Construction Industry – October 2015
10 Most Undervalued Companies for the Defensive Investor – August 2015
5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – August 2015 $BEN $RL $FOSL $PWR $CMI
The 20 Best Stocks For Value Investors This Week – 7/25/15

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Quanta Services Inc. Valuation – October 2015 Update $PWR
Fluor Corporation Valuation – October 2015 Update $FLR

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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