What's in the Cards for Quanta Services' (PWR) Q3 Earnings?

Shutterstock photo

Quanta Services, Inc. PWR is scheduled to report third-quarter 2018 results on Nov 1, before the opening bell. The company, which shares space in the Engineering - R and D Services industry with KBR, Inc. KBR and Jacobs Engineering Group Inc. JEC , reported better-than-expected results in three of the last four quarters, with the average positive earnings surprise being 7.7%.

In fact, in the last reported quarter, earnings and revenues grew 18% and 20.7%, respectively, on a year-over-year basis, backed by robust revenue growth across the board and sound execution of projects.

Let's see how things are shaping up for this announcement.

Quanta Services, Inc. Price and EPS Surprise

Quanta Services, Inc. Price and EPS Surprise | Quanta Services, Inc. Quote

Factors at Play

Quanta Services is expected to generate higher revenues as well as earnings in the third quarter, given the company's strong prospects in end markets supported by key growth drivers such as an aging grid, shifting generation mix and grid modernization. These factors are expected to prove conducive to its top line, moving ahead.

The company remains optimistic about solid backlog levels in its end markets, as it enters a renewed multiyear up-cycle for businesses. This apart, Quanta Services sees acquisitions as a fundamental component of its strategy to boost market share and develop incremental backlog. The company's continuous bolt-on acquisitions are anticipated to boost top-line growth in the upcoming quarters.

Segment Discussion

Quanta Services remains optimistic about end-market prospects of both of its segments, namely Electric Power and Oil & Gas segments, over the next couple of years.

In the last reported quarter, the Electric Power Infrastructure Services segment (accounting for 59.1% of the total revenues) performed particularly well, with strong revenue growth (up 20.7% year over year) and margin expansion (up 60 basis points) on the back of outstanding execution of a large transmission project, as well as higher margin incremental emergency restoration work performed during the quarter.

For the said segment, Quanta Services expects third-quarter revenues to be the highest in 2018, while projects sequentially lower revenues in the fourth quarter due to typical seasonal trends. Operating margins are expected to grow in double digits in the third and fourth quarter.

Meanwhile, the company expects the communications business (included in the Electric Power segment) to perform well. Of late, it continues to make inroads with customers, as they deploy capital for fiber-to-the-home and business, long-haul fiber, 4G wireless backhaul and the early stages of 5G. With the larger diameter pipeline market expanding and a multi-year cycle ahead of it, the company remains optimistic about its communications infrastructure services operations.

Given this backdrop, the Zacks Consensus Estimate for third-quarter revenues for the segment is pegged at $1,636 million, reflecting growth from $1,570 million in the last reported quarter.

Meanwhile, Quanta Services' Oil and Gas Infrastructure Services segment (accounting for 40.9% of the total revenues) looks equally promising, primarily owing to the improving mainline and natural gas distribution, and integrity markets. The segment's revenues were up 20.7% in the last reported quarter, largely driven by a contribution of around $195 million from the Stronghold acquisition.

The company expects that sales and margins will improve in the third quarter, aided by expected revenue growth from large diameter pipeline construction activities, along with continued improvement in gas distribution and base business.

Moreover, the Zacks Consensus Estimate for third-quarter revenues for the segment is currently pegged at $1,365 million, up from $1.086 million in the second quarter.

However, inadequate resource utilization and the absence of larger diameter pipeline projects impacted margins in the first as well as second quarter of 2018. Also, the impact of severe weather on some of its ongoing projects, as well as an unfavorable effect from the timing of revenues and corresponding income have been adding to the company's woes.

How are Estimates Faring?

Let's take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

For the quarter to be reported, the Zacks Consensus Estimate is currently pegged at $1.02 per share, trending downward over the past 60 days. However, the estimate reflects 61.9% year-over-year growth. Total revenues are expected to be $2.96 billion, up 13.3% year over year.

What Does the Zacks Model Say?

Our proven model does not conclusively show that Quanta Services is likely to beat estimates in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Quanta Services currently carries a Zacks Rank #2.

Meanwhile, we caution against stocks with a Zacks Rank #4 and 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions. You can see the complete list of today's Zacks #1 Rank stocks here .

A Stock With Favorable Combination

Here is a construction stock that you may want to consider, as our model shows that it has the right combination of elements to post an earnings beat in the upcoming release:

MasTec, Inc. MTZ has an Earnings ESP of +2.2% and a Zacks Rank #2. The company is slated to report quarterly results on Nov 1.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Jacobs Engineering Group Inc. (JEC): Free Stock Analysis Report

MasTec, Inc. (MTZ): Free Stock Analysis Report

Quanta Services, Inc. (PWR): Free Stock Analysis Report

KBR, Inc. (KBR): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: JEC , MTZ , PWR , KBR

More from Zacks.com




Equity Research

Research Brokers before you trade

Want to trade FX?