Industrials: Engineering and Construction

RE-INITIATING COVERAGE REPORT

William C. Dunkelberg Owl Fund

October, 22nd 2014
Jesse Barone: Lead Analyst
jbarone@theowlfund.com
Ethan Friedland: Associate Analyst
efriedland@theowlfund.com
Joseph Heidt: Associate Analyst
jheidt@theowlfund.com

Quanta Services Inc.

Exchange: NYSE

Ticker: PWR

Target Price: $37.24

COMPANY OVERVIEW
Quanta Services Inc. is a specialty contracting and infrastructure
services company operating primarily in the U.S. (79.9% of FY 2013
revenue), with some operations in Canada (17.3%), and internationally
(2.8%) as well. Quanta is a full service engineering, procurement, and
construction service provider, which owns the largest specialized
equipment fleet in the industry. With a highly skilled work force of
21,000 individuals, Quanta is the premier provider of services within
the engineering and
construction industry. The
company is divided into
three segments: Electric
Power Infrastructure
Services (68.7% of FY 2013
revenue), Oil & Gas
Infrastructure Services
(28.7%), and Fiber Optic
Licensing and Other (2.6%).

Sector Outperform
Recommendation: BUY
Key Statistics:
Price
Return
Shares O/S (mm)
Market Cap (mm)

$31.44
18.27%
212.9
$6,720

52 Week Low
52 Week High
Yield
Enterprise Value

$28.45
$37.49
0.00%
$6,241

1 Year Price Graph:

INVESTMENT THESIS
Quanta Services is currently trading at a 23.19% discount to its five
year historical EV/EBITDA average. Investors have recently started
devaluing Quanta because of the recent economic data that has come
out showing signs of a global economic slowdown and more
specifically, a slowdown in the US economy. Investors have also
begun to devalue PWR because of the recent pullback in the energy
sector, in which 30% of PWRs FY 2013 revenue was generated from.
Investors felt that with energy companies not being as profitable as
they once were because of lower oil prices, those companies would
begin to push off capital expenditure projects since some of the
projects can be delayed without severe effects to the companies dayto-day operations. Pushing these projects off will hurt the energy
companies efficiency, but in the short-term, that is not a top priority
as some of these companies are struggling with profitability. Quanta
currently has three economic moats which are a capital intensive
nature of the industry, a large scope of services, and an industry
leading brand that customers recognize as the best company within
the industry giving Quanta a competitive advantage over its
competitors. Looking forward, investors have not accounted for
Quantas ability to continue to win contracts and expand its backlog,
future acquisitions, synergies from prior acquisitions, and the aging
electric power infrastructure of the US and Canada. Taking these
catalysts into account, we believe Quantas EV/EBITDA multiple
will appreciate to its five year historic trading level of 9.72x, and reach
our target price of $37.24, representing a return of 18.27%.

Earnings History: Fiscal Year September

Quarters
3Q13
4Q13
1Q14
2Q14

EPS
$0.43
$0.45
$0.38
$0.40

Rev. YoY
-2.00%
9.00%
11.00%
26.00%

Price
1.48%
7.60%
-0.31%
-4.23%

Earnings Projections:
Year
2012
2013
2014(Q3e,Q4e)
2015e

Q1
$0.25
$0.36
$0.38
$0.45

Q2
$0.36
$0.35
$0.40
$0.57

Q3
$0.45
$0.43
$0.55
$0.66

Q4
$0.52
$0.45
$0.53
$0.59

Total
$1.52
$1.53
$1.83
$2.24

All prices current at end of previous trading sessions from

date of report. Data is sourced from local exchanges via
CapIQ, Bloomberg and other vendors. The William C.
Dunkelberg Owl fund does and seeks to do business with
companies covered in its research reports.

Fall 2014
SEGMENT OVERVIEW
Electric Power Infrastructure Services

RISKS

Electric Power Infrastructure Services made up 68.7% of the Companys

FY 2013 revenue. In this segment, PWR designs, installs, upgrades, repairs,
and maintains electric power transmission, distribution networks, and
substation facilities.
Oil & Gas Infrastructure Services
PWRs Oil & Gas Infrastructure Services business made up 28.7% of FY
2013 revenue. In this segment, PWR designs, installs, maintains, and repairs
pipeline transmission and distribution systems, gathering systems,
compressor stations, and pump stations.

Fiber Optic Licensing and Other

Quantas Fiber Optic Licensing and Other segment makes up the
remaining 2.6% of the Companys FY 2013 revenue. In this space, PWR
designs, procures, constructs, maintains, and owns fiber optic
telecommunications infrastructure of dark and lit fiber.

CONTRACTS
Contract Types
For FY 2013, PWRs revenue consisted of three different types of
contracts. Fixed contracts made up the largest percentage of FY 2013
revenue at 46%, followed by unit price contracts at 34%, and cost plus
contracts at 20%. PWR normally goes after contracts that are focused on
new construction projects. These types of projects made up 60% of FY
2013 revenue, while master service agreements (MSAs) made up 27%.
MSAs are contracts where parties agree to most of the terms that will
govern future transactions or agreements. MSAs permit the parties to
quickly negotiate future transactions or agreements, because they can rely
on the terms of the master agreement and negotiate only the deal-specific
terms. Maintenance and repair projects made up the remaining 13% of FY
2013 revenue.

ECONOMIC MOATS: Narrow & Stable

Contracts Won
PWRs most recent contract came on August 21, 2014 for the Chino Hills
Segment of Tehachapi Renewable Transmission Project, which Quanta will
provide construction services for the 500-kilovolt underground project.
Services include infrastructure installation, road borings, manholes, and
steel risers. Another contract won by Quanta was a contract from
Labrador-Island Link Partnership to install 684 miles of 350 kilovolt
overhead high voltage transmission lines. This contract was the largest ever
contract awarded to PWR in the electric transmission segment (no deal
amount was released). In addition, PWR was selected by PPL Electric
Utilities on July 2, 2014 to install transmission infrastructure for the
Northeast Pocono Reliability Project. PWR's scope of work for the project
includes the installation of approximately 68 miles of new 230-kilovolt and
138-kilovolt overhead transmission line, erection of steel transmission
structures, installation of concrete foundations, and the construction and
maintenance of access roads.

The William C. Dunkelberg Owl Fund

Regulatory Environment: Each

segment is subject to government
regulations such as registration, licensing,
and pollution regulations. An increase in
regulations or the inability to comply with
these regulations would delay current
projects and add extra costs.
Labor Union Relations: Quantas
workforce is about 49% unionized with
the International Brotherhood of
Electrical Workers and Canadian Union
of Skilled Workers. Any conflicts with the
Company and the unions could result in
significant disruption in operations.
Fixed Price Contracts: Fixed-price
contract amounts are established in part
on cost and scheduling estimates that are
based on a number of assumptions,
including those about future economic
conditions, prices and availability of labor,
equipment, and materials. If these
estimates prove inaccurate, the company
bears the risk of paying some or all of the
cost overruns

Capital Intensive: The Construction and

Engineering Sector, especially
contracting, is a capital/fixed asset
intensive industry. Few companies have
the capital structure that allows them to
invest in tools, equipment, and other
capital expenditures necessary to be
competitive in the sector, creating a high
barrier to entry for prospective
competitors.
Efficient Scale: Quanta provides a wide
range of services within each segment
across North America. The different
services work together across segments
and geography to spread out fixed costs
and create operating efficiency between
each segment.
Brand: Quanta is the industry leader in
providing contract services of delivering
infrastructure solutions. Thus, PWR is
recognized by industry professionals as
the superior contractor within the
infrastructure service industry. This
recognition allows Quanta to win highly
profitable contracts for its services.

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Fall 2014
Catalysts
Contract Wins/Backlog Growth
PWR continues to win contracts such as the Chino Hills Segment of Tehachapi Renewable Transmission Project, which
PWR will provide construction services for the 500-kilovolt underground project. Services include infrastructure
installation, road borings, manholes, and steel risers. Another contract won by Quanta was a contract from LabradorIsland Link Partnership to install 684 miles of 350 kilovolt overhead high voltage transmission lines. This contract was
the largest contract ever awarded to Quanta in the electric transmission segment (no deal amount was released). Due to
the contract wins PWR has experienced, backlog has continued to grow at a strong pace, with Q2 FY 2014 growing at
15% YoY. Backlog has slightly decreased from the end of 2013, but we do not view this as a major concern because
PWRs backlog is being converted at a higher rate than historically. This is shown by the Company estimating that
57.29% of its backlog will be converted in the next 12 months, while at the end of 2013, the company estimated only
about 54% of its backlog was going to be converted in the next 12 months.
Acquisitions
In the second quarter of 2014, PWR completed an acquisition of a small geotechnical and geological engineering services
company. During the first quarter, PWR completed five acquisitions. Four of these acquisitions were located in Canada
and are electric power infrastructure service companies, which were made to help diversify PWRs geographic offering.
The fifth acquisition was a general engineering and construction company specializing in hydrant fueling, waterfront and
utility construction for the Department of Defense, and will be reported under the Oil & Gas segment. We see these
acquisitions as potential growth drivers for the company moving forward because even though they were of smaller size,
they enable PWR to penetrate additional markets and gather expertise in those markets without having to go through the
growing pains if PWR did it alone.
Electric Power Infrastructure
There are several trends going forward that will provide growth opportunities for PWR in this segment. The first of
these trends is the overall aging infrastructure in the US and Canada. Since a lot of the infrastructure is old, the reliability
it provides for customers/clients is poor; companies are trying to take advantage of newer, more reliable technology that
will also improve efficiency and customer experiences. Along with improving the infrastructure, more power generation
facilities will have to be built in order to keep up with the new infrastructure, and just overall demand increases
experienced in North America. Another trend moving forward is renewable energy and natural gas becoming a more
prevalent source of energy. With both of these new forms of energy, especially renewables, significant infrastructure is
required to not only be able to capture the energy from these sources, but there is significant infrastructure needed to
convert and transport this energy to make it usable by consumers. As a result of these trends, we think there is the
potential for larger types of contracts,
such as the one PWR just won, to
become available for the Company to
win. This will not only increase revenue
and earnings, but also increase PWRs
margins by allowing it to be more
selective of the contracts it agrees to.
Analysts estimated that thus far in 2014,
$8B of mid to large sized contracts have
been awarded in North America. In
2015 and 2016, analysts are projecting
an estimated cumulative contract total
of more than $67B will be awarded. The
increase in available contract volume
will give PWR negotiating power,
allowing the Company to become more
profitable and expand margins.

The William C. Dunkelberg Owl Fund

Page 3

Fall 2014

TARGET PRICE
PWR is currently trading at a 23.19% discount relative to
its five year historical EV/EBITDA average. Multiplying
the target multiple of 9.72x by NTM EBITDA of
$795.80mm yields an enterprise value of $7,735.18mm.
Subtracting debt and preferred of $5.80mm and
$15.20mm, and adding back cash of $188.90mm yields an
equity value of $7,903.00mm. Dividing the equity value of
$7,903.00mm by 212.2mm shares outstanding yields a
target price of $37.24 and a return of 18.27%.

Historical Average Target Price= $37.24

Historical Average Multiple = 9.72x
NTM EBITDA = $795.80

PEER GROUP IDENTIFICATION

Flour (NYSE:FLR): Professional services company providing
engineering, procurement, construction, fabrication and
modularization, commissioning and maintenance, and project
management services worldwide.
Jacobs Engineering (NYSE:JEC): Provides a broad range of
technical, professional, and construction services to clients across
nine different industries globally.
MasTec Inc. (NYSE:MTZ): Infrastructure construction company
providing engineering, building, installation, maintenance and
upgrade services to five different industries primarily in the U.S..

INDUSTRY OVERVIEW
Electrical Power Grid Infrastructure Spending
The electric grid in North America needs extensive improvements due to decades of underinvestment and the changing
needs of the country. The improvements in reliability started in 2003 when a blackout in the Northeast, Midwest and
Canada lasted four days and cost up to $10 billion in economic losses. Transmission spending has increased to more
than 3x historical spending levels. According to The C Three Group, 17 of the most active U.S. utilities, based on
transmission spending from 200813, are expected to increase their aggregate transmission spending by 81% from 2014
till 2020.
Electricity demand is expected to grow in the US by about 1.1% a year through 2030. Over the next decade, the world
will need to invest between $140.2B to $170.5B per year on traditional transmission and distribution (T&D)
infrastructure in order to keep pace with growth in electricity demand. An additional $8-27.3B will be invested annually
in smart grid infrastructure to improve the efficiency and reliability of T&D grids, according to a new dataset published
by Northeast Group, LLC. However, North America and Europe will see lackluster growth in traditional T&D
infrastructure spending of around 1%, but will account for the majority of smart grid spending. Smart grid annual
spending on distribution automation will be concentrated in Europe ($11.5 billion per year), followed by North America
($7.5 billion) and East Asia
($6.1 billion), as these regions
modernize their existing
electric infrastructure. The
Obama administration has
made an $11 billion down
payment on a more efficient
grid. That has included $4.5
billion in grants to develop a
so-called smart grid, which
applies the speed and power
of the internet to the
generation, transmission and
distribution of electricity.

The William C. Dunkelberg Owl Fund

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Fall 2014
Regulations Affecting the Electrical Power Grid
There has been an increase in regulation from the EPA in this industry. The two major regulations are the Mercury and
Air Toxins Standards (MATS) and the Cross-State Air Pollution Rules (CSAPR). According to SNL Energy data, U.S.
power producers plan to shutter 27,143 MW coal capacity between 2014 and 2022. 13,550 MW of that will be retired as
soon as the MATS takes effect. Under CSAPR, power plants in 28 states will have to reduce their sulfur dioxide
emissions by 75% from 2005 levels, and their nitrogen oxide emissions by 54%. Also, the EPA is requiring coal-fired
power plants to install flue gas desulfurization equipment, which cost hundreds of millions of dollar each. There have
also been further EPA proposals that would require new natural gas-fired power plants to reduce their pounds of CO2
per megawatt-hour by about 39%, and 30% for existing power plants.
The purpose of the Clean Power Plan unveiled by the EPA is suppose to cut carbon emission from US power plants by
30% from 2005 levels by 2030. The regulation aims at the 600 coal powered plants and hopes these are converted to
natural gas power or become more efficient. Regulation affecting the electrical power grid will mostly be around grid
reliability. Poor forecasting by the EPA means the reliability of the electrical grid will be threatened due to coal
shutdowns, as coal serves as baseload power for much of the country. This means that coal provides a constant
minimum rate of power throughout the day needed to keep the lights on.
Key Pipeline Trends
Increasing gasification is shaping the long term demand profile for pipes. Over the next twelve years there is an expected
35% increase in the demand for gas, as natural gas is expected to account for 26% of total energy consumption by 2030.
This growing demand is also driving an increase in larger diameter pipelines.
Investment in new infrastructure to support LNG and unconventional gas developments will be a major factor shaping
future demand for pipelines. Outside the major oil province of the Middle East, gas-related lines accounted for 67% of
km installed over the past five years. This figure is expected to increase over the 2013-2017 time period.
Increased investment in shale gas and oil will drive additional requirements for midstream pipes in the US. Surging Asian
energy demand is changing traditional supply flows domestically and abroad. Asia will overtake North America as the
largest market for onshore pipelines within the coming decade as the region looks to increase imports of oil and gas
from neighboring regions.
The US and Canada will require midstream natural gas investment of $205.2 billion over next 25 years ($8.2
billion per year).
New infrastructure will be required to move natural gas from regions where production is expected to grow
and to areas where demand is expected to increase.
Natural gas consumption is expected to grow at 1.6% per year within North America.
Roughly 29 Bcfd of incremental pipeline capacity is being built between 2011 and 2020; and from 2021 to 2035 an
additional 14 Bcfd is being built. A total of 43 Bcfd of incremental pipeline is needed to accommodate increasing gas
supply that is necessary to satisfy market needs over time. These maps do not show intra-regional pipeline expansions
such as those that occur within the Marcellus shale production area.

The William C. Dunkelberg Owl Fund

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Fall 2014
Miles of Pipeline Added and Projections
Most new pipe (about 16,500 miles) is gathering line, which is generally smaller diameter pipe that is planned
for and financed as part of upstream project development.
An average of approximately 2,000 miles of new transmission line is added each year, which is well within the
range of recent years. Roughly 1,400 miles per year are mainline miles, while about 600 miles per year are for
lateral connections to power plants, processing plants, and other facilities.

FINANCIALS
Revenue
Revenue for FY 2013 was reported at $6,523mm, a 10.2% increase YoY. Revenue has grown at a five year CAGR of
18.4% and is expected to grow at an 8.1% CAGR until 2016. For Q2 FY 2014, PWR reported revenue of $1,865mm, a
YoY increase of 26.5%. This growth is being driven by both the Electric Infrastructure and Oil & Gas Infrastructure
services segments.
Electric Infrastructure
This segment reported sales of $4,481mm in FY 2013, representing a 6.5% increase YoY. In Q2 FY 2014, revenue was
reported as $1,239mm, representing an 18.4% increase YoY. This increase was driven by the continued improvement
that is needed for the North American electric grid and increased utilities transmission spending.
Oil & Gas
Oil & Gas reported revenue of $1,870mm in FY 2013, a 21.8% increase YoY. In Q2 FY 2014, PWR reported revenue
of $585mm, representing a 51.7% increase YoY. This increase was driven by the recent North American energy boom
and the infrastructure that is subsequently needed to support the production of additional infrastructure such as new
building new pipelines, or maintaining/repairing the old pipelines to ensure their safety and reliability.

The William C. Dunkelberg Owl Fund

Page 6

Fall 2014
Margins
PWR has seen inconsistent expansion in margins
throughout its history, but always seem to hover
around the same range. From 2011-2013 margins
have stayed between 15-15.9% for gross margin,
5.9-6.5% for EBITDA margin, and 3.2-3.7% for
profit margin. Year to year, margins are dependent
on the mix of projects that the company does, the
pricing environment, and simply the weather which
can have adverse or positive effects on margins.
However, even with these inconsistencies in
expansion, the company has always had superior
margins across the board compared to competitors.
Going forward, the company is expecting slight
compression in margins due to a different mix of contracts and the harsh weather in the beginning of the year, which
affected the efficiency in which contracts were being done. Gross margin is expected to compress to 15.9% compared to
16.2% in 2013, but then expand to 16.4% in 2015. EBITDA margin is expected to compress to 10.3%, compared to
10.6% in 2013, but expand in 2015 to 11.2%. Profit margin is expected to expand to 5.2%, compared to 6.5% in 2013,
but expand again to 5.8% in 2015.
Earnings
While Quanta has beaten quarterly earnings estimates 6 out of the 10 previous quarters, the Company has really
struggled to beat earnings estimates as it has missed analyst estimates in 4 of the past 5 quarters. The Company saw a
drastic increase in net income between 2011 due to a 41.17% YoY sales growth that was driven by electric distribution
services demand created by Hurricane Sandy,
new contract wins in the NGP segment,
along with the completed payment of its
pension plan withdrawal liability in FY 2011.
This led to EPS increasing 126.9% YoY
from 2011. For FY 2013, net income grew
37.8% YoY, yet only grew 0.6% to $1.53 per
share due to costs associated with the sale of
equity ownership interest in Howard Energy,
along with additional legal expenses. Looking
forward, FY 2014 EPS is estimated to
be $1.83 (19.3% growth YoY), with
consensus estimates projecting 2015 and
2016 EPS to be $2.24 and $2.44,
representing YoY growth of 22.7% and 8.8%
respectively.
Capital Expenditures
Quantas capital expenditures involve expanding the network capabilities of its FOL segment, expanding overall
construction vehicle fleet size, along with establishing facilities in new business sub-segments. CAPEX has increased at a
CAGR of 12.43% from $165.0mm in 2009 to $263.6mm in 2013. In 2013, Quanta allocated approximately $450mm to
the FOL segment, while $24mm was invested in vessels in order to enhance the companys offshore oil and gas
infrastructure sub-segment. From 2013 to 2016, CAPEX is expected to grow at a CAGR of 1.85% from $263.6mm to
$278.5mm, with a spike in 2014 of $298.4 in capital expenditures.

The William C. Dunkelberg Owl Fund

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Fall 2014
Cash Flow
From 2009 to 2013, CFFO increased at a CAGR of 16.76% from $240.3mm in 2009 to $446.6mm in 2013. In 2012,
CFFO actually decreased to $166.8mm, the lowest levels since 2006. The decline was due to increased short term
spending and more flexible terms on receivables for its larger ongoing projects at the time. Quanta saw such a large
increase in CFFO from 2012 to 2013 due to the completion of major projects during the year that drove net income up
37.8% YoY. CFFO is expected to grow from $446.6mm in 2013 to $612.5mm in 2016, representing a CAGR of 11.10%.
This projected growth is attributed the forecasted
completion of projects which will increase net
income and decrease unbilled revenues and current
liabilities. From 2009 to 2013, FCF decreased at a
CAGR of 3.60% from $211.9mm to $183.0mm. Free
cash flow was positive in all of these years except for
2012. During 2012, Quanta encountered significantly
higher working capital costs from some of its larger
ongoing operations. From 2013 to 2016, FCF is
expected to grow at a CAGR of 22.1% from
$183mm in 2013 to $334 in 2016. FCF growth will
be driven by net income growth along with the
completion of larger projects.
BACKLOG
2013 backlog was reported at $8.7 billion, a 24.9% increase YoY. 44% of the backlog consists of master service
agreements. This increase was driven by the Electric Power segment backlog, which increased to $5.9 billion from $4.9
billion in 2012, representing a 21.3% increase YoY. The Oil & Gas segments backlog increased to $2.2 billion from $1.6
billion in 2012, representing a 41.6% increase YoY. For Q2 FY 2014, PWR reported a backlog of $8.7 billion up 15.6%
YoY. Backlog for the Electric Infrastructure segment was $5.9 billion, up 18.8% YoY. Oil & Gas segment backlog was
reported at $2.2 billion, an 8.2% increase YoY. Lastly, the Fiber Optics segment reported a backlog of $594mm
representing an increase of 14.2% YoY. These increases have been driven by utilities implementing system-hardening
initiatives and increasing networks as demand increases, as well as the large need for improvements to the North
American oil and gas infrastructure due to increased shale plays and pipeline projects.
ACQUISITIONS
Quanta is an acquisitive company by nature and during FY 2013 made six acquisitions. Quanta paid a total $341.1mm in
cash and $88.9mm worth of common stock. These companies expanded Quantas presence in the Midwest,
Northeast, Central Canada, and Australia. These companies increased Quantas capacity to provide mechanical
installations for offshore oil and gas companies, pipeline logistics to a broader area of the country, and pipeline
construction services to Australia. In Q1 FY 2014, Quanta completed five acquisitions. Four of these five companies
were electric power infrastructure services companies located in Canada. The fifth company is a general engineering and
construction company, based in California, specializing in hydrant fueling, waterfront and utility construction for U.S.
Department of Defense military bases. Q2 2014 saw the acquisition of a small geotechnical and geological engineering
services company based in the U.S. that is included in Quantas Electric Power Infrastructure Services segment. Quanta
paid for these acquisitions with $83.2mm in cash and $38.6mm in common and preferred stock.
SHAREHOLDER RETURNS
On December 6, 2013, Quanta announced the authorization of the repurchase of up to $500 million of Quantas
common stock over the following 3 years until 2016. During Q2 2014, the Company purchased approximately 1.3
million shares of common stock that amounted to $45.0mm. Buying back shares reflects managements confidence in
long term growth opportunities along with a commitment to delivering increased value to shareholders.

The William C. Dunkelberg Owl Fund

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Fall 2014
VALUATION
Original Undervaluation
Quantas devaluation began at the end of FY 11 after Quanta revised earnings guidance down due to a $32.6 mm fee
associated with the withdrawal from the Central States Southeast and Southwest Areas Pension Plan. The large fee along
with a full year performance that was dragged down by the negative operating margin of the NGP segment resulted in a
steep multiples contraction. Afterwards investors remained bearish on the company, where the stock price only
increased by 3% after Quanta reported a Q1F12 that experienced a 68% YOY sales growth and an EPS that beat
estimates by 56%. At the end of 2012, Quanta experienced another multiple contraction after Hurricane Sandy inflated
sales and earnings, and price only responded by increasing 1%. Within the last year, Quanta has consistently beat
estimates with strong sales and earnings growth, however this achievement continues to be overshadowed by
macroeconomic events such as the government shutdown, and the Syrian event.
Undervaluation
Until recently, Quantas multiple had seen strong expansion from its original level of 8.80x EV/EBITDA when it was
initially bought. However, PWRs EV/EBITDA multiple has seen significant contraction in the last month. Initially, the
contraction began because of weak economic data coming out, especially the construction and manufacturing data. Also
contributing to the decline in PWRs multiple has been the recent energy selloff. Since PWRs highest growth segment
has been its pipeline infrastructure segment, with energy companys profitability coming into question with the decline
of oil prices, PWRs ability to convert on its backlog and be awarded new contracts came into question as the energy
companies had things that were of higher importance than a new pipeline, or infrastructure upgrades.
PWR is currently trading at an EV/EBITDA multiple of 7.89x, when historically it trades at a 9.72x EV/EBITDA
multiple on a 5 year historical basis, representing a discount of 23.19%. Multiplying the target multiple of 9.72x by NTM
EBITDA of $795.80mm, yield an enterprise value of $7,735.18. Subtracting debt of $5.80mm, subtracting preferred of
$15.20mm, and adding back cash of $188.90mm, yields an equity value of $7,903.0. Dividing the equity value of
$7,903.0mm by 212.2 shares outstanding yields a target price of $37.24, yielding a total expected return of 18.27%.
Target EV/EBITDA

9.72x

NTM EBITDA

$795.80

The William C. Dunkelberg Owl Fund

Target Price

$37.24

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Fall 2014
Peer Group Valuation
The companies used in the relative valuation are Jacobs Engineering Group Inc. (JEC), MasTec Inc. (MTZ), and Fluor
Corporation (FLR). These three companies were the original three companies used in the initial relative valuation and
are all companies that are within the construction and engineering sub-sector. PWR is currently trading at a 16.36%
discount to its competitors on a five year historical EV/EBITDA basis. PWR usually trades at 1.28x its competitors
multiple, but it currently only trading at 1.10x its competitors multiple. Dividing the historic premium by the current
premium yielded us the 16.36% discount, and when multiplying the current EV/EBITDA multiple of 7.89x by the mean
factor of 16.36%, yields a target multiple of 9.18x. Using this target multiple and multiplying it by the NTM EBITDA
yields an enterprise value of $7,305.44mm. Adding back cash of $188.90 and subtracting debt and preferred of $5.80 and
$15.20, yields an equity value of $7,437.34mm. Dividing by shares outstanding of 212.20mm yields a target price of
$35.22, which equates to an 11.84% return.

Target EV/EBITDA

9.18x

NTM EBITDA

$795.80

The William C. Dunkelberg Owl Fund

Target Price
$35.22

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Fall 2014
Discounted Cash Flow
Assumptions
The 7 year CAGR for sales growth of 7.38% was found by using analyst consensus sales growth until 2016, and then
tapering the sales growth off to a sustainable 5.0% for in 2020. Margins are expected to remain pretty consistent in 2014
to 2013 levels, then expand in 2015, 2016, and 2017 after the benefits from restructuring related activities and the
synergies reached from acquisitions, especially with SKM, are realized.
WACC
The WACC of 13.22% was calculated using the five year average weights of 99.48% equity and 0.52% debt. Cost of
equity of 11.78% was calculated using CAPM, in which the expected market return was 9.91%, risk free rate of 2.13%,
and the beta used was 1.240. The cost of debt of 1.13% was calculated using a tax rate of 34.10%, short-term debt
weight of 29%, short-term rate of 0.33%, long-term debt weight of 71%, long-term rate of 2.14%, and an adjustment
factor of 1.06.
WACC

13.222%

EM Method
EM: 10.0x
$40.18

The William C. Dunkelberg Owl Fund

FCF Equity
P/E: 17.0x
$37.62

GP Method
GP: 0.2%
$43.34

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Fall 2014
DISCLAIMER
This report is prepared strictly for educational purposes and should not be used as an actual investment guide.
The forward looking statements contained within are simply the authors opinions. The writer does not own any
Quanta Services Inc. stock.
TUIA STATEMENT
Established in honor of Professor William C. Dunkelberg, former Dean of the Fox School of Business, for his
tireless dedication to educating students in real-world principles of economics and business, the William C.
Dunkelberg (WCD) Owl Fund will ensure that future generations of students have exposure to a challenging,
practical learning experience. Managed by Fox School of Business graduate and undergraduate students with
oversight from its Board of Directors, the WCD Owl Funds goals are threefold:

Provide students with hands-on investment management experience

Enable students to work in a team-based setting in consultation with investment professionals.
Connect student participants with nationally recognized money managers and financial institutions

Earnings from the fund will be reinvested net of fund expenses, which are primarily trading and auditing costs
and partial scholarships for student participants.

The William C. Dunkelberg Owl Fund

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