Quanta Services Arm to Provide EPC Service for Watay Project

Quanta Services, Inc.'s PWR operating subsidiary, Valard Construction (“Valard”) has won an engineering, procurement and construction (“EPC”) contract from Wataynikaneyap Power LP to support the Wataynikaneyap Transmission Project in Northwestern Ontario, Canada. Notably, this deal marks one of the largest projects awarded to Quanta in its history.

This electric infrastructure project will link numerous remote communities in Ontario that are currently not connected to the provincial transmission grid. Quanta Services will help Wataynikaneyap Power to build more than 1,800 kilometers of transmission and distribution infrastructure.

The EPC contract is projected to begin in first-quarter 2020 and likely to be completed by the end of 2023. Notably, the company will book the contract value into backlog during third-quarter 2019.

Solid Project Execution Bodes Well

Quanta Services’ Electric Power Infrastructure Services segment has delivered industry-leading electric infrastructure EPC solutions to some of the largest transmission projects in Canada. Markedly, the recent contract will escalate its revenue growth expectation and margin projection going forward.

Long-term prospects of the segment remain robust, given customers’ investment in grid modernization programs to accommodate a changing fuel generation mix toward natural gas and renewables, intended to address the aging infrastructure, strengthen systems for resiliency against extreme weather conditions, and support long-term economic growth. At the end of the second quarter, the segment’s 12-month backlog was $4.96 billion and total backlog was $8.7 billion, up from 2018-end as well as the comparable prior-year period.

Coming to price performance, shares of this leading national provider of specialty contracting services have outperformed its industry so far this year. However, bottom-line estimates have declined 10.7% over the past 60 days, depicting analysts’ concerns over the company’s earnings growth potential. It has been witnessing volatility in Pipeline and Industrial operations, and consumer spending. Also, charge associated with the termination of a large telecommunications project in Peru, weather-related woes in Canada and lower contribution from emergency restoration services — which typically yield higher margins — are weighing on its margins.

Nonetheless, solid project execution strategy and three-pronged growth plan — which emphasizes on timely delivery of projects to exceed customer expectation, leveraging the core business to expand in complementary adjacent service lines and consistent exploration of new service lines — will help it gain traction.

Zacks Rank

Quanta Services — which share space in the industry with KBR, Inc. KBR, Jacobs Engineering Group Inc. JEC and AECOM ACM — currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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