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Quanta Services

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The Houston-based company helps electric and gas utilities maintain network infrastructure, which accounts for about two-thirds of its revenue. Quanta Services also helps cable television and telephone providers build and maintain their networks.

Fidelity Investments

, formerly the company's largest shareholder, said last month that it cut its Quanta position from 13.8% to 5.5% of the shares outstanding (without giving a reason). That news, coupled with fears that energy transmission growth could slow along with the broader economy, has sent the stock down 2.2% for the year, closing Wednesday at $20.48.

Amid these misfortunes, on Jan. 29, JPMorgan upgraded Quanta from neutral to overweight. The analyst cited the potential for the company to generate 15% to 20% annual earnings growth over the next three years, as utilities face increased public pressure to upgrade their aging networks.

This is an interesting stock story, one that's right up my alley. My prime role here at is to run the Value Investor service, where I routinely analyze stocks like these. (Click here for a free trial to Value Investor.) Quanta Services may be a tempting stock play, but you should buy shares now?

It's not just New York's home energy utility

Consolidated Edison

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-- which has seen massive outages and fatal steampipe explosions make national news -- that sees the need to spend $2.7 billion in 2008 for capital investments. The nation's utility infrastructure is aging, and Quanta is one of the companies that will be called upon to make the repairs.

In December, the company signed a $750 million contract with

Northeast Utilities


to help the New England utility expand its transmission infrastructure over the next six years.

Quanta's electric orders grew 10% year over year in the third quarter, and including this deal, management is expected to announce $1.5 billion of new bookings to its $4.35 billion backlog when the company posts fourth-quarter results later this month.

In the meantime, Quanta has a solid balance sheet with $371 million of cash and a manageable 19% total debt-to-equity ratio. The company's convertible debt has a low average fixed coupon of 4.25%, and none of the principal is due until 2023.

With Quanta's shares nearly 40% off their October highs, I believe they already are pricing in the risk that new energy transmission capacity could slow down along with the broader economy. The company has nearly two years' worth of revenue in its backlog, which should continue to grow as the nation's utilities are forced to constantly upgrade their aging infrastructure.

Given these developments, I believe Quanta shares could trade back up toward the mid-$20s over the coming quarters.

Quanta Services is not part of Value Investor model portfolio. David Peltier writes about high-yield and value stocks regularly for Value Investor and

Dividend Stock Advisor.

David Peltier is a research associate at In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Peltier appreciates your feedback;

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