Quanta Services Earnings: Results Highlighted by Large Project Win

We maintain our $125 fair value estimate for no-moat Quanta Services PWR following its first-quarter results. We continue to like Quanta’s end market exposure and solid execution but view these as already reflected in its valuation and see shares as overvalued.

Quanta’s 2023 is off to a solid start, with only minor tweaks to its full-year guidance. The company raised full-year revenue guidance for its Renewable Infrastructure segment by 5% due to a large new project award (discussed below). While first-quarter margins for this segment were weak (3.5%, down 450 basis points year-on-year), management reiterated full-year margin guidance for this segment. Margins were adversely impacted by a large Canadian transmission project, which has continued to be plagued by challenges in addition to challenges with solar projects following trade uncertainty in 2022.

In conjunction with results Quanta announced it was selected to manage construction for the SunZia Transmission and SunZia Wind projects. Management declined to quantify the project’s contribution to backlog, but it would appear to be sizable. The project includes 550 miles of high-voltage direct current, or HVDC, transmission lines in combination with a 3.5-gigawatt wind generation facility. While we view such a win positively and as indicative of Quanta’s advantage in large projects, our optimism is balanced by risks that have plagued construction of large infrastructure projects in recent years.

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.