Sunday, August 10, 2008

Quanta Services (PWR) - Looking to Break Out

Quanta Services (PWR) is one of these stocks in the right place, right time - and a chart that despite being an "infrastructure" play, is still working. The company's website can be found here.

Quanta Services is a leading specialized contracting services company, delivering infrastructure network solutions for the electric power, natural gas, telecommunications and cable television industries. The company's comprehensive services include designing, installing, repairing and maintaining network infrastructure nationwide. Additionally, Quanta provides point-to-point fiber optic telecommunications infrastructure and leasing in select markets and offers related design, procurement, construction and maintenance services.

We played a similar theme with General Cable (BGC), a stock we owned in the past - but that name seems to be unfairly tossed into the "homebuilding slowdown" dog pile, so the stock has been in purgatory.

Quanta reported last Wednesday, and the numbers were solid (although not all growth was organic).
  • Revenues in the second quarter of 2008 were $960.9 million compared to revenues of $552.2 million in the second quarter of 2007.
  • For the second quarter of 2008, income from continuing operations was $40.5 million or $0.22 per diluted share, compared to income from continuing operations of $21.8 million or $0.17 per diluted share in the second quarter of 2007.
  • Cash earnings per diluted share from continuing operations (a non-GAAP measure) were $0.26 for the second quarter of 2008 as compared to $0.18 in the second quarter of 2007.
  • "The second quarter continued a trend of strong revenue growth and operating margin expansion for our business. For the quarter, pro forma internal revenue growth was approximately 20 percent compared to the second quarter of 2007 including the effects of all acquisitions in both periods," said John R. Colson, chairman and chief executive officer of Quanta Services. "Our customers continue to invest in infrastructure despite a challenging economic environment. The growth in renewable energy generation is creating opportunities and adding momentum to the already strong electrical construction market."
  • Quanta expects revenues for the third quarter of 2008 to range between $1.00 billion and $1.04 billion and diluted earnings per share to be between $0.23 and $0.26. The third quarter 2007 results included the benefit of $17.9 million from the release of income tax contingencies.
  • Quanta expects cash earnings per diluted share for the third quarter of 2008 to range from $0.27 to $0.31.
I consider this stock to be expensive relative to the growth rate - on $0.84 EPS for 2008 and $1.29 for 2009 the stock is trading at 42x 2008 and 27x 2009, but frankly I have stocks growing faster for 1/3rd the valuation and all they do is sell off. So... fundamentals mean little and we look at this chart which is classic breakout after Friday's 5% move. A key resistance area in the low $34s was squashed.

Unfortunately the share count is up 33% from last year, so earnings "per" share will be tough to increase... but analysts seem extremely bullish on '09. The range for 2009 is $1.12 to $1.50 so there seems to be little consensus.... but growth is definitely on the agenda.

No position

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