MasTec (MTZ), Quanta Services (PWR): Oil Concerns Overblown for Specialty E&C, Says Deutsche Bank

Deutsche Bank maintained a Buy rating on Quanta Services (NYSE: PWR) with a price target of $43. MasTec (NYSE: MTZ) was maintained at Buy with a price target of $38. Analyst Vishal Shah called oil concerns overblown.

"Recent oil price declines have fueled negative investor sentiment around most energy-exposed names, including the specialty E&C names like PWR and MTZ. The bottom line is that short term oil price fluctuations do not drive long term multi-year investment decisions, in our view," said Shah.

"While a sustained oil price below $80 could increase uncertainty for marginal projects, we think prices would need to settle in the $50-60 range with a long term negative/flatish outlook for there to be large scale project risk for oil based longhaul pipelines. Furthermore, natural gas pipelines and gathering/midstream work continues to dominate the lion’s share of projects, although we acknowledge that this will start to shift in 2015 as already-contracted pipelines are built. However, PWR likely receives only ~25% of Oil and Gas revenues from mainline work, whereas MTZ is closer to ~20%. Shale work dominates revenue contribution and is focused on gas projects in many cases – PWR is ~80% Marcellus based, for instance," continued the analyst.

"We believe concerns around oil price exposure are overblown for the specialty E&C companies and would be buyers on weakness. Negative capital investment decisions around pipelines would not show up for 1-2 years in most cases, as many contracts are already filled from previous open seasons. Sustained lack of interest in future pipeline open seasons and substantial long term capex cuts from midstream players would be concerning, but indications currently suggest that there are minimal short term changes to pipeline build plans," he added.

For an analyst ratings summary and ratings history on Quanta Services click here. For more ratings news on Quanta Services click here.

Shares of Quanta Services closed at $30.50 yesterday.

You May Also Be Interested In

• Hertz Global (HTZ) PT Lowered to $6 at Deutsche Bank
• Powerfleet to Host Virtual Analyst and Investor Fireside Chat on April 30, 2024
• Evercore ISI Positive on Alaska Air (ALK): 'Upbeat Tone on Corporate & Backdrop'