Perhaps due to concern that regulatory hurdles that might hinder the upgrade of the nation's electric transmission and distribution grid -- a key business area for Quanta -- the stock has exhibited sideways action since the June 11, 2009 Buy recommendation at a price of $24.76.
Still, rare is the day you should sell an electric power generation play, hence I'm reiterating my Buy rating of PWR.
The key driver of the rating? Quanta's total order backlog of $5.5 billion, including contract wins with several, major utilities. The First Call FY2009/FY2010 EPS estimates for PWR are 69 cents to $1.05.
The risks include a double-dip U.S. recession that continues into 2010, which would delay corporate capital spending plants by utilities, telecommunications companies and cable systems; at this juncture, the risk of a double-dip is a about 10-15%. If you can tolerate moderate risk, a purchase is warranted, as the bias is to the upside with PWR.
Stock Analysis: Quanta Services is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in PWR now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your PWR position before December 2009. Sell/Stop Loss if you were to buy shares in this company: $12.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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