Read us and find out why Quanta Services Is One Of The Best 5G Investment Idea
Quanta Services provides specialized contracting services, offering end-to-end network solutions to the electric power, natural gas, and cable TV industries.
The Business
We expect revenue to be increasingly aided by PWR’s unique position to support the 5G buildout of infrastructure that connects wireless carriers and utility customers in coming years. In 2021, we see revenue growth of 9.5%-10.0% supported by 16%-18% growth in Underground Utility & Infrastructure. We see a strong multiyear growth opportunity from utility customers grid modernization and infrastructure hardening activity. Electric transmission pipeline work, both large and small, will benefit revenue growth in both the near term and long term. In 2022, we expect growth of 20%-25%. We expect EBITDA margin expansion of 50 bps to 9.6% in 2021 and then growth to 10.2% in 2022. Investments in communications operations support expansion. We expect free cash flow to fall 51% to $423M in 2021, followed by 67% growth to $705M in 2022, well above PWR’s five-year historical average of $218M. Days sales outstanding in Q3 was 89 days, up 7 days YoY and 6 days QoQ due to work on two large transmission projects. PWR has ample liquidity of $2B and leverage of 1.3x. We expect leverage of 2.5x after the Blattner acquisition. We expect that companies with exposure to the 5G infrastructure buildout will experience incremental top-line growth in coming years.They are not dependent on a federal infrastructure spending plan to benefit from 5G network buildout, and we think the Covid-19 pandemic has accelerated efforts in 5G and grid modernization. PWR is one of the best positioned to capitalize on this growth opportunity
Investment Case
Our Strong Buy opinion reflects our view of rising demand for power transmission and electrification projects in the next few years as PWR provides skilled resources and technology. We forecast significant growth from utilities as we think the industry is in the early stages of a multi-decade modernization program to replace aging infrastructure. We positively view the Blattner acquisition as it opens PWR to more utility energy solutions where we see accelerating growth potential. We see PWR as uniquely positioned to solve the gap between wireless carriers and utility companies as 5G infrastructure is deployed. Risks to our opinion and target include lowerthan-expected capital spending by utilities and cable companies, delays in transmission pipeline projects due to permit challenges from tighter government and environmental regulations, higher commodity and energy costs, and potential acquisition integration headwinds.
Price Target
Our 12-month target is $148, 23.8x our 2022 EPS estimate, above peers' forward average of 21.3x and at the top end of PWR's five-year forward average due to our outlook for longterm growth catalysts from grid modernization, 5G infrastructure, and battery electrification.
Our risk assessment is HIGH. Reflects PWR's dependence on just a few industries, the volatily spending patterns of its major customers, the ability by customers to terminate agreements on short notice, the volatility of the storm restoration service business, and the large portion of revenue derived from fixed-price agreements.
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