Quanta Services (PWR) Q3 Earnings: Stock Poised To Beat?

We expect Quanta Services, Inc. (NYSE:PWR) to beat earnings expectations when it reports third-quarter 2016 earnings results before the opening bell on Nov 3.

In the last quarter, Quanta Services had posted a negative earnings surprise of 56.2%. The company has missed earnings estimates twice over the trailing four quarters, with an average negative earnings surprise of 13.4%.

After two back-to-back dismal performances, we believe that the company is likely to beat on earnings this time around.

Why a Likely Positive Surprise?

Our proven model shows that Quanta Services is likely to beat earnings because it has the right combination of two key ingredients.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at +1.96%. This is very meaningful and a major indicator of a likely earnings surprise. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: Quanta Services carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), #2 or #3 (Hold) have significantly higher chances of beating earnings estimates. Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement.

The combination of Quanta Services’ Zacks Rank #2 and ESP of +1.96% makes us confident of an earnings beat in the upcoming report.

Factors Influencing Growth in Q3

Quanta Services has been strongly benefiting from pursuing its diligent three-pronged growth strategy. It focuses on the timely delivery of projects, leveraging on its core business areas to expand in complementary service lines and venturing into new service lines. The company’s decentralized and entrepreneurial business model has aided it in combating some of the most pressing macroeconomic challenges, thus driving growth in recent times.

Quanta Services’ thriving engineering and project management services are expected to boost its revenues for the soon-to-be-reported quarter. Of late, the company has been witnessing a solid rebound in its end markets, on the back of key growth drivers, like an aging grid, shifting generation mix and implementation of clean energy initiatives. Especially, the North American electric transmission and distribution markets have been investing huge amounts in transmission and distribution upgrades to improve system reliability and deliver renewable electricity.

We believe that these positive industry trends will act as strong catalysts for the quarter to be reported. Also, favorable government regulations, such as the EPA's Clean Power Plan and Federal Energy Regulatory Commission (“FERC”) Order 1000 to generate significant incremental electric transmission investment, is likely to prove conducive to growth. This apart, robust pipeline projects in the oil and gas sector, supported by active bidding and negotiating environment, can also act as huge profit churners for the top line in the third quarter.

Moreover, a gradual shift from coal to gas for power generation from commercial and residential customers has been fortifying natural gas pipeline projects. In addition, Quanta Services’ previously completed acquisitions are likely to contribute significantly to theElectric Power Infrastructure Services segment’s top line. This is because it had made 11 acquisitions in 2015 to fortify this segment.

Stocks That Warrant a Look

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

Casella Waste Systems Inc. (NASDAQ:CWST) with an Earnings ESP of +60% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ball Corporation (NYSE:BLL) with an Earnings ESP of +5.44% and a Zacks Rank #2.

Tetra Tech, Inc. (NASDAQ:TTEK) with an Earnings ESP of +3.39% and a Zacks Rank #2.

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