Renewable power generation is expected to account for 42% of total electricity generation by 2050.
Patrick T. Fallon/AFP via Getty Images
The U.S. electricity grid is transforming– -adding more renewable power generation. That’s creating new opportunities for many companies. One electricity infrastructure builder is trying to capture a bigger piece of that growing pie by making a bold move.
Quanta Services (ticker: PWR) announced Thursday it was acquiring Blattner — a renewable power engineering and construction firm — for $2.36 billion in cash and stock worth about $340 million.
Blattner expects to generate about $315 million in 2021 earnings before interest, taxes, depreciation, and amortization, or Ebitda. Quanta is paying about 8.6 times that amount.
The cash will come mainly from new debt taken on by the combined company. Quanta has about $1.3 billion in debt on the balance sheet today. Wall Street projects about $1.2 billion in 2021 Ebitda, giving the company a debt to Ebitda ratio of about 1 times.
The deal will add more renewable exposure to Quanta’s electricity grid business. It will also add about about 90 cents in per share earnings to Quanta’s bottom line in 2022. Coming into Thursday, analysts projected 2022 earnings of $5.13 a share.
Quanta stock is up 11.4% in late trading Thursday. The S&P 500 is up about 0.3%. The Dow Jones Industrial Average has added about 0.4%.
“We believe what Quanta is to the electric power solutions industry, Blattner is to the utility-scale renewable energy solutions industry,” said Quanta CEO Duke Austin in the company’s news release. “Together, we will be focused on what we believe are the most attractive areas of the electric infrastructure complex….[Blattner] will enhance our ability to collaborate with our customers to shape North America’s energy transition to a carbon-neutral economy.”
Blattner has completed or been awarded more than 300 wind projects, 90 solar projects and 17 energy storage projects. The company has been exclusively focused on renewable power generation since 2006.
Since 2006, renewable power generation in the U.S. has gone from about 386 billion kilowatt hours to 792 billion kilowatt hours, up more than 100%. Renewable power generation accounted for about 20% of total U.S. electricity generation in 2020. More renewable generation is coming. The U.S. Energy Information Administration predicts renewable power generation will account for 42% of total electricity generation by 2050.
“The acquisition of Blattner will add a new arrow to Quanta’s power infrastructure quiver,” wrote Baird analyst Andrew Wittmann. “Thematically, investors will likely be in favor of the transaction around energy transition themes.” Wittmann called the purchase price reasonable. He rates Quanta shares Buy and has a $110 price target. He hasn’t updated his estimates for the deal yet.
Wittmann isn’t alone in his positive take on the stock. Quanta is popular among analysts. More than 80% of analysts covering the company rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%.
That’s been a good call lately. Quanta shares are up about 56% year to date.
Barron’s wrote positively about Quanta in October believing it could benefit from higher capital spending on electrical infrastructure. Since that article appeared, shares are up about 90%, better than the 31% and 24% comparable, respective gains of the S&P 500 and Dow Jones Industrial Average.
Other electricity-infrastructure stocks are moving Thursday too. MasTec (MTZ) stock is up 4.4%. MYR Group (MYR) stock has gained 4.8%.
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