Quanta Services Stock: Low Dividends, Solid Fundamentals

© Reuters. Quanta Services Stock: Low Dividends, Solid Fundamentals

I am bullish on Quanta Services , Inc. (NYSE:PWR) stock.  

Quanta sells, installs, upgrades, repairs, and maintains infrastructure and network solutions to the electric power, oil, gas, and communication industries. Over 24 years, Quanta has built a market cap of $16 billion. (See PWR stock charts on TipRanks)

Quanta Engineers Money

Quanta's revenue has trended upward in each of the past five years, save for a pandemic-influenced 2020. Despite the pandemic’s toll on the North American economy, Quanta’s net income in Fiscal Year 2020 was $446 million, up 10.8% year-over-year.

Quanta’s assets as of Q2 2021 were $8.7 billion, against liabilities of $4.2 billion.

TipRanks assigns PWR a Smart Score of 8 out of 10, citing bullish blogger opinions, very positive investor sentiment, and positive technicals.

America is upgrading its power grids, modernizing its harbors and airports, expanding renewable sources of energy, and bringing Internet access to millions of people living in wi-fi deserts.

The country needs grids and lines for EVs. Power companies are trending towards outsourcing developments and maintenance. Quanta has such a 15-year long contract to maintain the power distribution system of Puerto Rico.

Worth a Mention

Insider trading was heavy on the sell-side over the past three months, far outdistancing the number of shares insiders bought.

As well, management appears more committed to M&As than increasing its dividend. The company has acquired over 200 companies since its founding.

The announcement of Quanta’s acquisition of energy storage company Blattner Holdings Co., sparked a 13% pop in the share price over two days in September, expressing the volatility of the stock. Blattner cost $2.7 billion in cash and shares of PWR.

The dividend has not grown in three years, hovering at 0.2%. That is well below the unimpressive average for the Industrial Sector of 1.25%.

Lastly, one must ponder how inflation, wage increases, labor shortages, and shortages of raw materials and manufactured goods will affect earnings over the next two years. What if the pending infrastructure legislation fails to pass, or the allocations are halved as one Senate Democrat proposes?

Bottom Line

Quanta operates in high-value sectors, and the average PWR price target has an upside potential of 9.9%. Shares sell at near-to-fair value, despite being so volatile.

Quanta is in a sound position to benefit from an expanding economy, more federal spending, and outsourcing by utility companies.

Overall, PWR is low-risk with solid growth potential..

Disclosure: At the time of publication, Harold Goldmeier did not have a position in any of the securities mentioned in this article.

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