Construction Stocks

Quanta Services Inc Valuation – March 2019 #PWR

Company Profile (excerpt from Reuters): Quanta Services, Inc. (Quanta), incorporated on August 19, 1997, is a provider of specialty contracting services, offering infrastructure solutions primarily to the electric power and oil and gas industries in the United States, Canada and Australia, and selected other international markets. The Company operates through two segments: Electric Power Infrastructure Services, and Oil and Gas Infrastructure Services. The services it provides include the design, installation, upgrade, repair and maintenance of infrastructure within each of the industries it serves, such as electric power transmission and distribution networks, substation facilities, renewable energy facilities, pipeline transmission and distribution systems and facilities, and infrastructure services for the offshore and inland water energy markets.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PWR – March 2019

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 $4,963,069,313 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.84 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 158.99% Pass
6. Moderate PEmg Ratio PEmg < 20 15.34 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.47 Pass
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 1.84 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.68 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.28
MG Growth Estimate 7.85%
MG Value $55.18
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $33.07
MG Value based on 0% Growth $19.39
Market Implied Growth Rate 3.42%
Current Price $34.99
% of Intrinsic Value 63.41%

Quanta Services Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.5 in 2015 to an estimated $2.28 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.42% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Quanta Services Inc revealed the company was trading below its Graham Number of $41.66. The company pays a dividend of $0.04 per share, for a yield of 0.1% Its PEmg (price over earnings per share – ModernGraham) was 15.34, which was below the industry average of 20.99, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-0.95.

Quanta Services Inc performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$0.95
Graham Number $41.66
PEmg 15.34
Current Ratio 1.84
PB Ratio 1.47
Current Dividend $0.04
Dividend Yield 0.11%
Number of Consecutive Years of Dividend Growth 1

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $3,326,104,000
Total Current Liabilities $1,806,127,000
Long-Term Debt $1,040,532,000
Total Assets $7,075,787,000
Intangible Assets $2,180,059,000
Total Liabilities $3,470,334,000
Shares Outstanding (Diluted Average) 151,310,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.30
Dec2018 $1.90
Dec2017 $2.00
Dec2016 $1.26
Dec2015 $1.59
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 $0.67

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.28
Dec2018 $1.72
Dec2017 $1.63
Dec2016 $1.46
Dec2015 $1.50
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 -$1.72

Recommended Reading:

Other ModernGraham posts about the company

Quanta Services Inc Valuation – May 2018 $PWR
14 Best Stocks for Value Investors This Week – 2/11/17
Quanta Services Inc Valuation – February 2017 $PWR
15 Best Undervalued Stocks of the Week – 8/20/16
Quanta Services Inc Valuation – August 2016 $PWR

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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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