Quanta Services Popped: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Promises, promises -- don't knock promises. When Quanta Services (NYS: PWR) reported earning $0.15 in per-share profit for Q2 today, that number just met Wall Street estimates. But when Quanta then promised to do better this quarter, well, that really sent the stock flying.

So what: According to management, Quanta's on track to earn adjusted profits of $0.80 to $0.90 in fiscal Q3, versus analyst estimates of only $0.69 per share -- 23% better than expected.

Now what: Management feels confident making these promises based on a hunch that the company is on "on the verge of a significant growth cycle" -- and it had better be right if it's to justify its valuation. Right now, post-stock-jump, Quanta shares sell for nearly 36 times earnings. Analysts are looking for only 12.6% annual growth out of Quanta over the next five years, which suggests pretty severe overvaluation in the shares. Honestly, I'm not sure even doing 23% better than expected will be enough to make Quanta a promising investment.

Think Quanta can pull it off?Add it to your Fool Watchlistand find out.

At the time this article was published Fool contributorRich Smithdoes not own (or short) shares of Quanta Services. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.

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