Quanta Services (PWR) Q4 Earnings: What's in Cards?

Quanta Services Inc. PWR is expected to report fourth-quarter 2015 results before the opening bell on Feb 18, 2016.

Quanta Services recorded a negative earnings surprise of 3.8% over the last four trailing quarters.

Let's see how things are shaping up prior to this announcement.

Factors to Consider

Of late, Quanta Services' financials have been adversely impacted by weak performance of its Electric Power Infrastructure segment business. Factors like low customer spending, decline in emergency restoration services revenues and delays in project timing owing to regulatory and permitting issues related to large electric transmission projects have undermined the performance of this segment. This will likely weigh on fourth-quarter 2015 earnings as well.

At present, one of the biggest challenges for the company is obtaining the sighting and permission for energy infrastructure projects, including major electric transmission programs, and this continues to weigh on its profitability. Such factors are anticipated to hurt the performance of the company's Electric Power segment during the to-be reported quarter. Also, macroeconomic factors like volatility in oil & gas market, reduced consumer spending, strengthening of the U.S. dollar and unfavorable weather conditions may pose as concerns for fourth-quarter 2015 results.

Along with its third-quarter 2015 earnings, Quanta Services had announced a reduced outlook, which indicated a bleak scenario leaving most investors flustered. For full-year 2015, the company had lowered its earnings per share expectations from continuing operations to a range of 79–85 cents (from $1.05–$1.20 guided earlier). Also, revenues were revised downward to a band of $7.45–$7.55 billion (from the previous range of $7.5 billion–$7.7 billion).

Quanta Services also provided an unenterprising guidance for fourth-quarter 2015. While the company projected fourth-quarter 2015 adjusted earnings per share from continuing operations within 26–32 cents, revenues were expected in a range of $1.75–$1.85 billion.

On the positive side, an overall increase in spending for upgrade and expansion of transmission & distribution infrastructure, for improving system reliability and delivering renewable electricity from new-generation sources to demand centers, will likely combat most of these challenges. Moreover, lucrative deals won during the third quarter, including Maurepas Pipeline project for SemGroup, REX Zone Three Capacity Enhancement Program for Rockies Express Pipeline contract and package A of the Norlite Pipeline Project for Enbridge, are expected to act as growth drivers for the quarter to be reported.

Notably, four companies were acquired by Quanta Services during the third quarter. These, including a foundation services company and an electrical contracting company both located in the U.S.; an electrical engineering company located in Australia; and a U.S.-based company that services above-ground storage tanks. These acquisitions will likely bolster the company's inorganic growth during the fourth quarter.

Earnings Whispers

Our proven model does not conclusively show that Quanta Services will beat earnings this season. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 25 cents.

Zacks Rank: Quanta Services' Zacks Rank #3, when combined with 0.00% Earnings ESP, makes surprise prediction difficult. Note that stocks with a Zacks Rank #1, #2 or #3 have a significantly higher chance of beating earnings.

Conversely, we caution against stocks with Zacks Ranks #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies which you may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

American Capital, Ltd. ACAS with an Earnings ESP of +12.50% and a Zacks Rank #2.

Beacon Roofing Supply, Inc. BECN with an Earnings ESP of +8.33% and a Zacks Rank #2.

Magellan Health, Inc. MGLN with an Earnings ESP of +5.56% and a Zacks Rank #1.

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