Moody’s affirms Quanta’s Baa3 rating, revises outlook to positive

Investing.com -- Moody’s Ratings has affirmed Quanta Services (NYSE:PWR), Inc.’s Baa3 senior unsecured ratings and Prime-3 commercial paper rating while revising the company’s outlook to positive from stable.

The improved outlook reflects Quanta’s strong credit metrics with expectations for further improvement over the next 12-18 months. Moody’s also cited the company’s enhanced portfolio scale and diversification following strategic acquisitions in recent years that have provided exposure to new end markets with favorable outlooks.

Quanta’s Baa3 rating is supported by its large scale, diverse end-market and customer base, and successful track record of completing projects within anticipated timeframes and budgets. The company benefits from its highly trained workforce and favorable dynamics in key electric power and renewable energy markets.

The credit profile is further strengthened by positive end market fundamentals as utilities focus on increasing renewable energy generation, replacing aging infrastructure, modernizing the electricity grid, and outsourcing more engineering and construction services. Quanta’s master service agreements with utility customers provide relative revenue stability.

However, the rating remains constrained by Quanta’s exposure to fixed price contracts, limited geographic diversity, and reliance on utility customers. The rating also takes into account the company’s focus on growth through acquisitions and periodic share repurchases, including its willingness to take on debt for these initiatives.

Quanta’s P-3 commercial paper rating reflects its excellent liquidity, supported by strong free cash flow generation. The company’s $1.5 billion commercial paper program is backed by a $2.8 billion unsecured credit facility due July 2029.

According to Moody’s, Quanta’s rating could be upgraded if it maintains an adjusted leverage ratio (Debt/EBITDA) at or below 2.0x or if its funds from operations consistently exceed 40% of total debt.

Conversely, the rating could face downward pressure if the leverage ratio exceeds 3.0x or if the adjusted interest coverage ratio falls below 5.0x, although Moody’s noted it might tolerate temporarily higher leverage for acquisitions if metrics are expected to improve within a reasonable timeframe.

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