Readers of this space know that one of the preferred sectors is the electric/power generation sector, which should benefit from both an expanded infrastructure and ramping energy demand, once U.S. economic growth resumes. Further, there are lateral lays associated with the above, and Quanta Services (NYSE: PWR) is one.
Quanta Services provided specialty contracting services that design, install and maintain the infrastructure and networks for three industries: electric power and gas, telecommunications and cable television, and governmental and commercial entities.
In general, analysts expect a 3-7% revenue decline in F2009 for PWR, due to a contraction in capital spending by customers.
The value proposition, then, for PWR? A total backlog of $5.2 billion should keep the company humming until the tide comes back in and capital spending growth resumes. The company also has demonstrated proficiency at securing major clients, and it recently won a national grid contract award. The First Call FY2009/FY2010 EPS estimates for PWR are 81 cents to $1.18.
The risks include a U.S. recession that continues into 2010, which would delay corporate capital spending plans by utilities, telecommunications companies and cable systems.
Stock Analysis: Quanta Services is a moderate-risk stock. Consider buying a 25% position in PWR now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your PWR position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $12.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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