Quanta Delivers Solid 2023 Guidance

We are raise our fair value estimate for no-moat Quanta Services PWR to $125 from $116 per share following its fourth-quarter results and 2023 outlook. Our fair value raise is driven by an increase to our revenue forecast over the next few years, particularly within the electric power and renewable infrastructure segments. We continue to like Quanta’s end market exposure and solid execution, but view these as already reflected in its valuation. We see shares as overvalued.

Quanta’s 2023 guidance slightly outpaced our expectations for revenue, while margins were in line. The electric power and renewable infrastructure segments are expected to see revenue growth in 2023 of 13% and 17%, respectively. This beat our expectations for 9% and 14%, respectively. While a majority of this beat was driven by acquisitions the company completed in early 2023 (expected to account for $600 million in sales), organic growth was also a factor. As a result, we raise our revenue estimates slightly for both segments through 2025.

Quanta’s 2023 margin expectations were approximately in line with our expectations. Electric power segment margins are expected to be 11% (midpoint), consistent with our expectations. Margins for the renewable infrastructure segment disappointed in 2022 (8.1% versus initial guidance of 9%) as uncertainty with regards to solar trade policy delayed projects. Management expects margins to rebound to 8.5% in 2023 (slightly below our 9% expectation), but we see a path to 9.0%-9.5% over the next few years with solid execution.

Quanta remains well-positioned to benefit from electric grid investment and the buildout of renewable energy. However, we view its valuation as already reflective of such tailwinds.