Quanta Services Inc (PWR, Financial) experienced a daily loss of -5.58% and a 3-month loss of -10.16%, with an Earnings Per Share (EPS) of 3.92. The question is: Is the stock fairly valued? This article aims to explore the valuation of Quanta Services (PWR) and provide insights to potential investors. Read on for a comprehensive analysis of the company's financial strength, profitability, and growth prospects.
Quanta Services is a leading provider of specialty contracting services, delivering comprehensive infrastructure solutions for the electric and gas utility, communications, pipeline, and energy industries in the United States, Canada, and Australia. Quanta reports its results under three reportable segments: electric power, renewables infrastructure, and underground utility and infrastructure. In 2021, the company acquired Blattner, a provider of comprehensive engineering, procurement, and construction solutions to customers in the renewable energy industry.
Understanding GF Value
The GF Value is a proprietary measure that estimates the current intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Quanta Services (PWR, Financial), with its current price of $176.64 per share and a market cap of $25.60 billion, appears to be fairly valued according to the GF Value. This suggests that the long-term return of its stock is likely to be close to the rate of its business growth.
Investing in companies with low financial strength could result in permanent capital loss. Quanta Services has a cash-to-debt ratio of 0.08, ranking worse than 90.07% of 1601 companies in the Construction industry. GuruFocus ranks Quanta Services's financial strength as 6 out of 10, suggesting fair balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Quanta Services has been profitable 10 over the past 10 years. Its operating margin is 5.03%, ranking better than 51.63% of 1625 companies in the Construction industry. The profitability of Quanta Services is ranked 8 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. Quanta Services has an average annual revenue growth of 12%, ranking better than 74.66% of 1551 companies in the Construction industry. The 3-year average EBITDA growth is 16.9%, ranking better than 71.62% of 1318 companies in the Construction industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Quanta Services's ROIC is 5.88 while its WACC came in at 8.25.
In conclusion, the stock of Quanta Services appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 71.62% of 1318 companies in the Construction industry. To learn more about Quanta Services stock, you can check out its 30-Year Financials here.
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