Quanta Services Inc. Quarterly Valuation – January 2015 $PWR

220px-QScolorjpgBenjamin 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 5 Most Undervalued Companies for the Defensive Investor – December 2014.  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 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 services the Company provides include the design, installation, upgrade, repair and maintenance of infrastructure within each of the industries the Company serves, such as electric power transmission and distribution networks, substation facilities, renewable energy facilities and pipelines transmission, gathering and distribution systems and facilities. It operates in three segments: electric power infrastructure services, natural gas and pipeline infrastructure services and fiber optic licensing and other. Effective August 14, 2013, Quanta Services Inc acquired JW Didado Electric Inc, an electric utility company. Effective July 29, 2013, Quanta Services Inc acquired Nacap Australia Pty Ltd.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - FAIL
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $28.35
MG Value $60.60
MG Opinion Undervalued
Value Based on 3% Growth $22.82
Value Based on 0% Growth $13.38
Market Implied Growth Rate 4.76%
Net Current Asset Value (NCAV) $3.54
PEmg 18.01
Current Ratio 2.25
PB Ratio 1.39

Balance Sheet – September 2014

Current Assets $2,536,000,000
Current Liabilities $1,128,000,000
Total Debt $83,000,000
Total Assets $6,229,000,000
Intangible Assets $2,110,000,000
Total Liabilities $1,758,000,000
Outstanding Shares 219,500,000

Earnings Per Share

2014 (estimate) $1.97
2013 $1.87
2012 $1.44
2011 $0.62
2010 $0.72
2009 $0.81
2008 $0.87
2007 $0.89
2006 $0.15
2005 $0.25
2004 -$0.08

Earnings Per Share – ModernGraham

2014 (estimate) $1.57
2013 $1.28
2012 $0.96
2011 $0.74
2010 $0.76
2009 $0.72

Dividend History
Quanta Services does not pay a dividend.


Quantas Services Inc. qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only initial concern is the lack of dividends, and the Enterprising Investor is also only concerned by the lack of dividends.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.76 in 2010 to an estimated $1.57 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 4.76% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Quantas Services Inc. (PWR)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Quantas Services Inc. (PWR) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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