Important disclosures appear on the last page of this report.

The Henry FundHenry B. Tippie School of ManagementAlec Davis [alec-davis@uiowa.edu]

Quanta Services Inc. (PWR) November 16, 2015Industrials – Engineering and Construction Stock Rating Hold

Investment Thesis Target Price $24-25

Despite a strong track record of growth and positive financial results, QuantaServices has recently experienced a significant number of project setbacks anddelays leading to a reduction in 2015 guidance. We believe increased biddingcompetition as well as a general trend towards larger, riskier projects willcontinue to drag on revenue and margins. The sale of the Fiber Optic businessline and subsequent share buyback program will return value to shareholders,but the long term growth outlook for the company is currently at risk. Thedisappointing results over the past 2 quarters have caused the stock to pull backsignificantly from its 52 week high and we currently rate PWR a “hold”.

Drivers of Thesis Negative 2015 revenue (-3.65%) growth reflect industry delays for large

transmission projects and weakness in the oil & gas market.

Project delays have cause margins to decrease by over 200 bps for 2015,some rebound likely for 2016 but no strong catalyst to return grossmargins to pre-2015 levels.

Disappointing earnings for Q2 and Q3 in 2015 have caused the stock to fall25% YTD and price now accurately reflects valuation.

Risks to Thesis Several large transmission projects could begin in 2016, putting excess

service capacity to work and boosting EBIT margin above forecasted 5.45%

Increased regulation of coal as an energy source could lead to greaterinvestment in new alternative production sites and more investment in“smartgrid” technologies.

Henry Fund DCF $24.73Henry Fund DDM $17.94Relative Multiple EPS $20.40Price DataCurrent Price $21.0052 Week Range $18.46-$33.97Consensus 1 YR Target $26.75Key StatisticsMarket Cap ($B) 3.31Shares Outstanding (M)Institutional OwnershipFive Year Beta

207.4M91%1.12

Price/Earnings (ttm) 20.36Price/Earnings (FY1) 17.5Price/Sales (ttm) .64Price/Book (mrq) 1.22ProfitabilityOperating Margin 6.06%Profit Margin 5.35%Return on Assets (ttm) 4.59%Return on Equity (ttm) 6.37%

Source: Factset

Earnings EstimatesYear 2013 2014 2015E 2016E 2017E 2018EEPS $1.87 $1.35 $1.23 $1.75 $2.01 $2.19

growth 27.78% -27.80% -8.89% 42.27% 14.86% 8.96%12 Month Performance Company Description

Quanta Services, Inc. provides engineering andcontracting services to the electric powerinfrastructure industry and the oil and gasinfrastructure industry. The company performsdesign, installation and maintenance oftransmission and pipline infrastrucutre. Itemploys approximately 24,600 people across theUS, Canada and Australia and is headquartered inHouston, TX.

20.4

6.4

10.4

16.7

9.0 8.9

18.9 19.3

11.4

0

5

10

15

20

25

P/E ROE EV/EBITDA

PWR Industry Sector

-60%

-40%

-20%

0%

20%

40%

N D J F M A M J J A S O

PWR S&P 500

Source: Factset

Source: Yahoo Finance

Page 2

EXECUTIVE SUMMARY

Quanta Services, Inc. operates in two key market segmentsrequiring significant amounts of skilled labor and technicalexpertise. PWR has been able to position itself uniquely asa large scale contracting service with the ability to self-perform a large percentage of work.

While this position has been beneficial in helping thecompany grow at a 21% CAGR since 2010, the increasedoperating complexity, due to the shift in electric projectstowards larger, higher transmission, and in more heavilyurbanized areas, has caused significant operatingdifficulties in 2015. We believe management has theability to correct some of these issues, but the underlyingconcern with the types of projects that must be executedremains strong.

This is especially pertinent in the face of an industry shifttowards more fixed-price contracts, now at 48% ofcontract revenue for Quanta, in which the operatingexecution risk is shifted towards the contractor, and amore aggressive bidding environment from smaller,regional competitors.

Given these challenges, we do not foresee Quanta beingable to maintain growth momentum. We forecast growthat or below industry levels for both the electrictransmission and Oil & Gas segments. The 2015 sale of theFiber Optic unit should help management focus onexecution in its core operating segments.

Quanta Services has traded at a premium relative to manyof its peers due to its strong growth characteristics, but inlight of the recent performance and management’slowered guidance, we do not believe the stock is currentlydeserving of such a premium. The recent pull-back in thestock has brought the valuation in-line with ourexpectations for growth, and therefore we rate the stocka “hold”.

Company Description

Quanta Services, Inc. is a provider of specialty consulting,construction and engineering services for the electrictransmission and oil and gas industries primarily in the USand Canada. The company has recently made acquisitionsto expand its presence in Australia as well.

In 2015 the company completed the sale of its Fiber OpticLicensing business to Crown Castle International Corp. for

approximately $1 billion in cash. The divestiture leaves thecompany with 2 operating units: Electric Power and Oil &Gas Infrastructure.

The electric power group provides comprehensivenetwork solutions for the electric power industry includingthe design, installation, upgrade, repair and maintenanceof electric power transmission and distributioninfrastructure and substation facilities along with otherengineering and technical services. It also providesemergency maintenance and repair services for theelectric transmission industry and the upgrade andinstallation of new “smartgrid” technologies on electricpower networks.

The Oil & Gas Infrastructure Services Group providescomprehensive infrastructure solutions to customersinvolved in the development and transportation of naturalgas, oil and other pipeline products. These services includethe design, installation, repair and maintenance forpipeline transmission and distribution systems, as well asrelated services such as pipeline trenching and boring,protection and integrity testing. The segment services oiland gas production areas of the US and Canada as well asproviding services to off-shore and inland water-basedexploration platforms.

Total revenue for 2014 was $7.75 billion of whichapproximately 67% was from the Electric Power segment,31% was from the Oil & Gas Infrastructure Segment, and2% was from Fiber Optic Licensing. Total revenue in 2014from the now divested Fiber Optic Licensing Segment wasapproximately $170 million.

The majority of the company’s revenues are generated inthe U.S., however the amount of international revenueshas increased of late due to expansion and acquisitions

ElectricPower

67%

Oil & GasInfrastucture

31%

Fiber Optic2%

2014 SEGMENT REVENUEBREAKDOWN

Page 3

into Canada and Australia, primarily related to the oil & gaspipeline segment.

Company Analysis

Quanta Services positions itself as a market leader inelectric power and oil and gas pipeline construction inNorth America. The company differentiates itself as ablend between specialty contracting services companiessuch as MasTec, MYR Group and engineering &construction firms such as Fluor, KBR, and Chicago Bridgeand Iron.

Source: PWR 2015 Investor Presentation

Quanta offers a larger scope of operations than mostcontractors, especially those serving the electric powermarkets, and the ability to self-perform more work thanmany of its engineering and construction competitors.

Electric Power

Quanta Services Inc. is the largest energy infrastructurespecialty contractor in North America, though the marketremains highly fragmented. The company has a strongreputation for service, quality and innovation and is theowner of several patents regarding its Line-Master roboticarm.

As a market leader, the company is well positioned tocapture growth resulting from the current investmentcycle trends for electric transmission within the UnitedStates. Aging infrastructure, along with trends away fromtraditional coal generation plants towards alternative andrenewable sources like wind and solar should continue todrive solid demand for contracting services in the nearfuture.

Electric power transmission represents the core operatingexpertise for Quanta, making up almost 70%. The companyhas a diverse customer base representing utility providersacross the US and Canada. Historically the unit has beenthe more profitable of the two, with operating margins ofapproximately 10-11%, although recent performanceissues have decreased margin performance to 9%.

Business in the energy infrastructure segment has beenfrom a mix of governmental and private enterprises,however since the financial crisis of the late 2000s,government spending has been restricted due tobudgetary concerns. Demand from private customers,principally large utilities is forecasted to remain strong asinfrastructure upgrades and a shift in the mix of energy

U.S.76%

Canada20%

Australia3%

Other1%

2014 REVENUE BREAKDOWN BYGEOGRAPHY

QuantaServices, 8.6% MasTec

Inc., 4.9%Henkels &

McCoy Inc.,4.3%

Others,82.2%

ELECTRIC TRANSMISSION LINECONSTRUCTION (U.S.) MARKET SHARE

(2014)

Page 4

supply requires additional investment. The industry isexpected to grow at 4.4% over the 5 year forecast window.

While the need for energy infrastructure investment in theUS is real and quantifiable, the process by which suchprojects are approved remains complex and time-consuming. Regulatory changes, such as FERC 1000,passed in 2010, which mandates that utilities coordinatetransmission plans regionally have caused many projectsto be delayed or altered. In addition, environmentalgroups continue to mount well-organized campaignsagainst large transmission projects.

Given this difficult operating environment, we forecastthat PWR will see moderate electric transmission revenuegrowth of 5% in 2016 following the difficulties of 2015, butbeyond we see growth slowing to 3% per year.

This slower growth environment has also put a strain onmargins, as many contractors, including PWR, have excesscapacity while waiting for larger projects to be approved.Reducing labor or equipment is a risky propositionhowever for these companies, and the highly skilled andspecialized capital required for this work is difficult toreplace on short notice. Therefore, we do not foresee asignificantly stronger operating environment relative tomargins over the 5 year forecast window.

Oil & Gas Infrastructure

The company’s Oil & Gas infrastructure unit provides avariety of services related to pipeline construction andmaintenance in North America and Australia. Businessgrowth has largely been driven by the expansion of shaleoil and gas production regions in the U.S. and Canada andthrough acquisition of smaller servicing companies.

Oil & Gas revenues have grown significantly over the pastseveral years, growing at a 27% CAGR from 2011-2015.Growth for 2015 is forecasted at 8% as exploration andproduction activity in unconventional oil fields throughoutthe region is expected to slow due to the decline in oilprices.

Private industry customers make up the vast majority ofbusiness in the Oil & Gas segment, consisting mainly of oiland gas production, pipeline and refining companies.Similar to the electric power segment, large projecttypically require a complicated and often timely permittingand citing process before work can begin. Operating

margins in the Oil & Gas segment are lower than theelectric power segment, usually in the 7-8% range.

The Oil & Gas Pipeline construction industry is expected togrow at 4.6% over the 5 year forecast window, howeverthis figure could be subject to change due to the decline inthe price of oil.

We forecast revenues in this segment to grow at 4-5% overthe 5 year window, however this figure remains tied tolong term energy prices. The outlook for margins is weak,as we expect some compression, though not as much as inthe electric power segment. Moderate growth willcontinue in the industry, however due to the lowereconomic outlook for oil prices, this industry will as well besubject to excess capacity.

Overall for both units we forecast a decline in grossmargins from 15.25% to 12.85% in 2015 due to factorslisted above. This will improve moving forward as theeconomic outlook improves and the company is able tobetter match its work force to the operating environment,but long term margins of 14.01% in the terminal yearrepresent a decline over the recent historical performanceof the firm.

Recent Developments

2015 Performance Issues

On October 16th, 2015 Quanta Services reportedpreliminary Q3 diluted earnings per share of $0.22-$0.24,far below previous guidance of $0.34-$0.40 and loweredfull year revenue guidance to $7.5-$7.8 billion, below 2014revenue figures. This followed disappointing Q3 resultsand caused a further sell-off in the stock, touching a 52-week low of $18.56.

Continued project execution challenges, revenueshortfalls from project delays, and adverse weatherconditions were all cited as reasons for the poorperformance. In addition, on the Q3 earnings callmanagement stated that they were evaluating theappropriateness of continuing to offer quarterly guidancein light of the recent volatility in earnings and uncertaintysurrounding the operating environment outlook.

The drop in EPS and full year guidance is concerning,though we do believe many of the reasons cited arelegitimate and beyond the control of Quanta. Some 2015revenue will now shift into 2016, but the longer term

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outlook for performance related to electric transmissionprojects is being called into question. With no obviouscatalyst to improve operations or speed the rate at whichlarger transmission projects reach approval status, we feelPWR and the industry overall has likely over-run thegrowth rate, and now must sit on excess capacity whileawaiting regulatory approvals that it can do little toinfluence.

The contract backlog for Quanta is down slightly over thepast 6 months, but at this point in time the trend is onlymildly concerning, and thus far through Q3 the backlog hasremained stable. Careful monitoring of the contractbacklog over the next 6 months will be important indetermining Quanta’s ability to right the ship.

Sale of Fiber Optic Licensing Unit

On August 4th Quanta closed the sale of its fiber opticlicensing operations to Crown Castle International Corp.(NYSE: CCI) for approximately $1 billion in cash, $830million net after-tax proceeds.

We agree with management’s decision and rationale ofselling the unit in order to unlock its true value, and the15x trailing EBITA multiple supports this. Quanta hadrecently started expanding into the lit fiber market, alower margin but expansive segment of the fiber-opticcommunications industry, however as the industrycontinues to mature and demand for dark fiber slows,there is less strategic fit with Quanta’s current businessmodel.

Cash proceeds from the sale will be used to fund therecently announced $1.25B share buyback program, an

extremely large stock repurchase (~25%) of outstandingshares, of which $750M will be completed under andaccelerated agreement. The company has entered intothis agreement with JPMorgan and expects to completethe accelerated agreement around the end of Q1 2016.

While we support the sale of the unit, management’schoice to deploy almost all of the cash generated intoshare repurchase at this time is concerning for a companythat had been undergoing a period of significant growth,and we view this as an indication that the acceleratedgrowth patterns of the past 5 years will not continue.

International Expansion

Quanta continued its international expansion in 2015 withthe purchase of an electrical engineering company, furtherexpanding its presence in Australia following the 2013purchase of Nacap Australia, a leading energyinfrastructure contractor. The company also has a limitedpresence in Mexico, which could be a potential area foradditional expansion if energy prices begin to rebound.

While we view the international expansions as stronggrowth and diversification moves, and in line withQuanta’s growth through acquisition strategy, the recentfall in energy and commodity prices will likely havesignificant impacts on the Australian and Canadianeconomies. Given the weakness its core markets, we donot anticipate any further acquisition activity asmanagement works to shore up performance alongexisting operations.

The need for electric infrastructure investment in Australiaand the development of Canadian shale oil fields willcontinue, however likely at a slower pace than previouslyindicated, and thus making these acquisitions and marketsless attractive than they were only a short time ago. Whilethe short term outlook is weak for these markets, webelieve PWR was prudent in investing in internationaladjacent markets, and should energy prices rebound, thecompany is well positioned to capture growth in these newmarkets.

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INDUSTRY TRENDS

Investment in Transmission Infrastructure

Per capita electricity consumption in the US peakedaround 2000, and has been decreasingly slightly since asimproved efficiencies and greater public awareness ofconsumption habits has reduced demand. We expect thistrend to continue as Americans invest in more energyefficient machines and buildings.

U.S. per capita Electricity Consumption (kWh)

Source: World Bank

However, the need for investment in electricinfrastructure remains strong due to several factorsindependent of demand. Much of the electricinfrastructure in the United States has aged significantlyover the past decades and the country must now enter acycle of upgrade and repairs to prepare the electric grid forthe next several decades. Despite government efforts tolimit infrastructure spending due to budget concerns, the2009 American Recovery and Reinvestment Act helpedpave the way for expanded private investment intoinfrastructure projects through both direct and indirectsubsidies and funding sources.

Also driving demand for construction services is the moveaway from coal as a power source in the U.S. due togovernment regulations and consumer concerns overenvironmental damage. Currently coal accounts forapproximately 39% of the power supply, however weproject this figure to continue falling. Major powercompanies are now switching to renewable productionmethods such as wind and solar, or to natural gas poweredplants that have a lower environmental impact. Forexample from 2010-2014, wind energy accounted for 28%of all new electricity generating capacity installed.

Industry projections versus reality are another side of thestory however, as evidenced by the continued delaysexperienced in many large transmission projectsthroughout the US. Despite the need for new andupgraded infrastructure, the regulatory and legalenvironment continues to be a drag on the investmentcycle and this has negatively impacted the planningprocess for firms supplying this industry.

Shale Oil Boom and Bust

Fueling a large degree of development of oil and gasinfrastructure in North American has been the emergenceof shale oil production fields. These new production sites,made possible by advances in technology and overall highenergy prices, have greatly increased the productioncapabilities of both the U.S. and Canada over the pastdecade.

US Rotary Rig Count

Source: Baker Hughes, US Department of Energy

The recent fall in oil prices is a threat to this expansion, asmost on-shore North American production has higherproduction costs relative to many oil producing areas ofthe world. The active North American rig count has fallen

Page 7

sharply over the past year due to low energy prices, andour outlook for continued exploration and new productionis very weak.

However, the need for infrastructure to support existingproduction remains in place, therefore we still expectmodest growth in the space for PWR going forward,although at far lower levels than previously experienced.Given our long term outlook for lower oil prices, webelieve that further reductions in capex by majorproduction companies are on the horizon, and thus thedemand for pipeline construction could fall even further.

Markets and Competition

The specialty contractor and engineering and constructionservices markets in North America are characterized by ahigh degree of fragmentation. In this space Quanta hasestablished a strong reputation as the largest provider ofservices and one of the most vertically integrated with theability to self-perform much of actual project construction.

While barriers to entry in these markets are low from acapital requirements perspective, industry expertise andreputation are very important towards being able tosecure contracts. These industries also require a highdegree of skilled labor, and concerns over labor shortagessuch as journeyman linemen in the electric transmissionindustry are increasing. To combat this and strategicallyposition itself against the competition, Quanta isdeveloping a new training facility to help meet its demandfor skilled labor in the future. While we expect this newfacility to help mitigate some of the risk around laborsupply and cost, we to anticipate rising labor to be factorcontributing towards the reduced margin outlook for ourforecast period.

Strong customer relationships, an established reputation,and technical expertise are all key indicators for successfulcompanies in the engineering and construction servicesspace. Through both operations and acquisitions thecompany has built successful relationships with manylarge utility and energy companies throughout NorthAmerica. While no single customer accounts for over 10%of revenue, the 10 largest customers for Quanta accountfor approximately 32% of total revenue. These strategicrelationships are a strategic advantage for PWR and itsability to keep and maintain them is important to the longterm success of the company.

Peer Comparisons

Quanta Services operates as the largest contractor in theelectric power segment and a major player in the Oil & Gasinfrastructure segment. Competition in these segments ismixed between the competing units of major USengineering and construction services such as BechtelGroup, Fluor Corp (FLR), Chicago Bridge & Iron (CBI),MasTec Inc (MTZ), and MYR Group (MYRG) as well as avariety of smaller regional players. Among its peers,Quanta has above average sales per employee, and trailsonly Fluor Corp, which primarily participates in the lesslabor intensive oil & gas industries. Both in operationalperformance and capabilities, PWR has operated as amarket leader. While we believe the recent struggles areindeed due to many factors beyond the control of thecompany, the concern that management has grown thecompany to a size beyond which it can properly controland execute the business is a concern.

Regional markets often drive competition in the electrictransmission and oil & gas infrastructure segments,therefore the larger construction and engineering firmsoften find themselves competing against small regionalfirms when bidding for contracts as opposed to majorcompetitors. In the 3Q 2015 earnings call Quanta Servicesmanagement has indicated an increase in theaggressiveness of bidding from smaller regionalcompetitors. In light of the delays in large transmissionprojects, we believe this competitive environment willcontinue for the foreseeable future as the industry dealswith excess capacity and high fixed costs. In addition, dueto the skilled and specialized nature of the capitalrequired, many company’s in this space, including PWR,are reluctant to make cuts for fear of not being in case ofan acceleration in the market.

When comparing valuation metrics, Quanta trades at apremium relative most of its peers. This has historicallybeen justified due to the double digit revenue growth andmargin premium the company has been able to generateas a result of being a differentiated service provider andtechnological advantages such as the Line-master roboticarm.

The company’s growth into the Oil & Gas segment hascaused it to experience some volatility relative to the priceof oil, and has increased the riskiness of the stock relativeto its historical performance. The company’s beta has

Page 8

increased steadily since 2010 to 1.42 over the past 12months.

MTZ CBI MYRG FLR PWRP/E 19.92 7.61 15.99 10.02 19.56P/B 1.42 1.57 1.71 2.11 1.16MktCap (B) 1.45 4.65 0.582 6.56 4.83Rev (B) 4.62 13.09 1.02 20.25 7.98Gross Margin 12.9 11.7 13.3 6.6 14.5EBITA Margin 7.5 9.9 9.3 6.7 8.4NI Margin 1.7 4.8 3.6 3.4 3.5EV/EBITDA 8.33 5.25 5.58 0.27 8.08EV/Sales 0.58 0.51 0.52 4.1 0.63Employees 15550 54400 3650 37508 24600$/Emp (000s) 297.1 240.6 279.5 539.9 324.4

Recent performance struggles and negative revenuegrowth in 2015 indicate the stock maybe be deserving oftrading at lower multiples more in line with matureconstruction and engineering providers such as ChicagoBridge & Iron (CBI) and Fluor Corporation (FLR).

ECONOMIC OUTLOOK

The outlook for the electric transmission market in the USis positive. The aging North American power infrastructureand a shift towards new sources of electric power will driveelectric transmission construction and repair growth at aprojected 4.4% annually through 2020. Althoughgovernment expenditures continue to be pressured due todeficit concerns, a strong US economy will drive privateinvestment in the space.

However as mentioned earlier in the report, the linkbetween anticipated growth and project realization isweak, and we anticipate the industry will continue tosuffer from delays in permitting and increased projectcomplexity as newer projects become larger, higher involtage, and closer to population centers. This willnegatively impact contractors and firms serving theseprojects as delays and uncertainty will induce higher costsand lower margins.

In the Oil & Gas segment, growth in production fromunconventional fields in the U.S. and Canada has been astrong catalyst for growth, and is projected to growth at4.6% annually through 2020. We believe this growth couldbe at risk due to the recent fall in energy prices. Whileexploration and production has remained stronger thanexpected despite the lower price for oil, our expectation is

that capex reductions in the regions will increase as thelonger term outlook for lower oil prices make many NorthAmerican production areas uneconomic.

CATALYSTS FOR GROWTH

With a strong backlog of projects and a differentiatedmarket position in its core areas of operations, the biggestchallenge for Quanta recently has been successfulexecution on its projects. Should management be able toaddress these and return the company to its more recentEBIT margin of ~8% the stock could show positivemomentum again. This would also give managementconfidence to begin a more aggressive expansion andacquisition strategy again.

Demand for services in the electric transmission and Oil &Gas segments will remain strong, and increased regulationof power and energy industries, including increasedlimiting of the use of coal as a power source and moreregulations on pipeline safety and maintenance will bebeneficial to Quanta.

INVESTMENT POSITIVES

PWR has a strong industry reputation, is able to bookalmost 50% of contracts through strategic relationshipsand operates in economically important industrysegments projected to grow almost 5% over the 5 yearforecast period.

Despite slowdown in oil & gas E&P activity and projectexecution issues in 2015, the company has grownproject backlog to over $9B and a 12-month backlog ofalmost $5B.

PWR operates with very little debt and is well-positionedto continue to grow by strategic acquisitions, allowing itto diversify operations and geographies and build itsbase of strategic relationships.

INVESTMENT NEGATIVES

PWR missed Q3 EPS guidance by almost 50% andexperienced significant project execution issues, raisingconcerns of management’s ability to operate in thecurrent competitive environment.

Page 9

Permitting and regulatory delays in the electrictransmission segment have led to excess projectcapacity, negatively impacting margins.

Lower margins and a higher beta have driven ROE belowthe cost of equity, with management attempting largestock repurchase to reverse this trend.

Valuation

Our valuation was most heavily weighted towards DCFanalysis as Quanta Services does not pay a dividend. Ouranalysis projects a significant reduction in gross margin for2015 driven by a 300 bps increase in cost of servicesrelated to project execution issues. While we forecastsome improvement (approximately 75 bps) for 2016 andbeyond as the company better aligns itself with the currentoperating environment, our longer term outlook is lowerthan management’s guidance, reflecting concerns aboutthe riskiness of future project portfolio and thecompetitiveness of the bidding process. Our long termgross margin outlook of 14.0% is below the 5 yearhistorical average of 14.8%.

Revenues for the electric transmission unit are forecastedto decrease by 6% for 2015, in line with management’sguidance. We project a return to growth of 5% for 2016 assome deferred revenue will be recognized next year asprojects work through their delays, however we forecastlow 3% growth moving forward as aggressive growth ofthe past 5 years has challenged management’s ability toproperly execute at this scale.

The Oil & Gas segment is forecasted to grow at 8% thisyear, the midpoint of management’s guidance, howevergrowth will slow to 4% over the 5 year forecast window aslower long term oil prices reduce the momentum forunconventional oil & gas production in North America.

A beta of 1.28 was used for capital cost estimation, anaverage of the 1 year through 5 year betas for thecompany, and reflective of the increasing risk as thecompany moves to larger, more complicated electrictransmission projects and becomes more tied to recentvolatility in the oil markets. The a 3% continuing value ofNOPLAT was modeled, reflecting the long-term moderategrowth outlook for both of the company’s main industrysegments.

Pre-tax cost of debt was 4.1% as Quanta maintains verylittle long term debt. The overall cost of capital used in DCFanalysis is 8.89% as the company is almost 95% equityfinanced. The company has made no announcements ofplans to change its capital structure, however we feel atthis time management would be prudent to consideradditional debt to lower the overall cost of capital.

The company’s sale of the Fiber Optic unit forapproximately $830 in after tax proceeds was forecastedto be used almost exclusively to fund the $1.25 sharerepurchase program in 2015-2016. We have forecastedthe completion of this program in 2016, along withadditional stock repurchase of $150M for 2017-2018 and$100M, as management has indicated a preference forshare repurchases as a means of boosting EPS and ROE.

No major acquisitions were forecasted at this time due tothe difficulty in predicting future strategic opportunities,and therefore revenue growth over the forecast periodrepresents only organic growth.

Dividend Discount valuation yields a target price of $17.94as the company’s EPS has struggled due to operationalissues this year. A CV of ROE at 6.68% relative to the 9.27%cost of equity is concerning as management must look tofind a way to improve ROE through performance andcapital structure.

Our relative P/E valuation of $20.40, using an adjusted EPSof $1.15 for 2015 to back out earnings from the sale of theFiber Optic unit, is in line with the current market price.Our analysis shows that the fall in the price in the stockover the past year due to operating concerns is justified,and that the stock appears now to be fairly valued.

KEYS TO MONITOR

Project execution performance over the next 12 monthswill be an important determining factor as we look to seeif Quanta can rebound from recent execution issues.Operating margin and project backlogs will be importantindicators in how management is able to improveexecution and maintain confidence from their customerbase.

Overall demand in the electric transmission market isprojected to be strong and stable due to aging equipmentrepairs and the shift in power fuel sources, however theoutlook for capital expenditure spending in the oil & gassegment is at risk due to the decline in oil prices. North

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American rig counts and exploration activity levels will beimportant in determining the outlook for spending on newinfrastructure in this space.

Finally, labor costs and the concern of a shortage ofexperienced lineman in the coming years will be achallenge the company must manage. The investment of$100 million into a new training facility should helpmitigate this issue and could provide a differentiatedadvantage in securing skilled labor relative to competitors.The company’s off-book multi-employer pension plansrepresent an additional risk, future costs associated withthis liability are difficult to forecast, but as the workforcecontinues to age, potential pension funding costs couldarise.

REFERENCES

1. Bloomberg Terminal2. Factset.com3. Quanta Services 2014 10K, retrieved from

quantaservices.com4. Quanta Services 2015 2Q Earnings Release,

retrieved from quantaservices.com5. Quanta Services August/September 2015 investor

presentation, retrieved from quantaservices.com6. “Transmission Line Construction in the U.S.”

industry report, retrieved from IBISWorld.com7. “Oil & Gas Pipeline Construction in the U.S.”

industry report, retrieved from IBISWorld.com8. Order No. 1000 - Transmission Planning and Cost

Allocationhttp://www.ferc.gov/industries/electric/indus-act/trans-plan.asp

9. “Wind Energy Facts at a Glance” -http://www.awea.org/Resources/Content.aspx?ItemNumber=5059

10. North American Rotary Rigs Count -http://www.wtrg.com/rotaryrigs.html

11.

IMPORTANT DISCLAIMER

Henry Fund reports are created by student enrolled in theApplied Securities Management (Henry Fund) program atthe University of Iowa’s Tippie School of Management.These reports are intended to provide potential employersand other interested parties an example of the analyticalskills, investment knowledge, and communication abilities

of Henry Fund students. Henry Fund analysts are notregistered investment advisors, brokers or officiallylicensed financial professionals. The investment opinioncontained in this report does not represent an offer orsolicitation to buy or sell any of the aforementionedsecurities. Unless otherwise noted, facts and figuresincluded in this report are from publicly available sources.This report is not a complete compilation of data, and itsaccuracy is not guaranteed. From time to time, theUniversity of Iowa, its faculty, staff, students, or the HenryFund may hold a financial interest in the companiesmentioned in this report.

Quanta Services, Inc.Key Assumptions of Valuation Model

Ticker Symbol PWRCurrent Share Price $21.27Current Model Date 11/17/2015Fiscal Year End Dec. 31

Pre-Tax Cost of Debt 4.10%Cost of Debt 4.10%Cost of Equity 9.27%WACC 8.89%Beta 1.28Risk-Free Rate 3.06%Equity Risk Premium 4.85%CV Growth of NOPLAT 3.00%CV Growth of EPS 3.00%Current Dividend Yield 0Marginal Tax Rate 34.4%Effective Tax Rate 33.3%

Revenue Decomposition

Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019ERevenues (000s)Electric Power Infrastructure 4,206,509 4,480,647 5,238,627 4,924,309 5,170,525 5,377,346 5,538,666 5,704,826

39.17% 6.52% 16.92% -6.00% 5.00% 4.00% 3.00% 3.00%Oil and Gas Infrastructure 1,534,713 1,869,615 2,444,558 2,640,123 2,798,530 2,938,456 3,085,379 3,208,794

51.76% 21.82% 30.75% 8.00% 6.00% 5.00% 5.00% 4.00%Fiber Optic Licensing and Other 179,047 172,580 168,065 0 0 0 0 0

12.00% -3.61% -2.62% 0.00% 0.00% 0.00% 0.00% 0.00%Total Revenues 5,920,270 6,522,842 7,851,250 7,564,432 7,969,055 8,315,802 8,624,046 8,913,621

29.16% 9.24% 16.92% -3.65% 5.35% 4.35% 3.71% 3.36%

Quanta Services, Inc.Income Statement

Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019ERevenues 5,920,269 6,522,842 7,851,250 7,564,432 7,969,055 8,315,802 8,624,046 8,913,621

Operating Expenses:Cost of Services 4,862,259 5,333,279 6,459,620 6,410,350 6,702,591 6,955,764 7,191,954 7,422,293depreciation 120,303 134,110 158,110 145,986 145,736 163,752 182,553 202,050Amortization of Intangibles 37,691 27,515 35,907 36,266 36,991 38,101 39,244 40,421Gross Income 900,016 1,027,938 1,197,613 971,830 1,083,737 1,158,185 1,210,295 1,248,857

SGA 434,894 501,010 722,038 639,195 649,662 677,930 703,059 726,666Operating Income (EBIT) 465,122 526,928 475,575 332,636 434,075 480,255 507,236 522,190

Interest Expense (3,746) (2,668) (4,765) (3,336) (3,179) (3,062) (3,042) (4,968)Interest Income 1,471 3,380 3,741 3,554 3,625 3,698 3,771 3,847Loss on early extinguishment of debt, net 0 0 0 0 0 0 0 0Earings/(Losses) of unconsolidated affiliates 2,084 112,744 (332) 0 0 0 0 0Other income (expense), net (351) (1,135) (1,102) (1,124) (1,147) (1,169) (1,193) (1,217)Income before income tax provision 464,580 639,249 473,117 331,730 433,374 479,721 506,772 519,852

Income tax provision 158,859 217,940 157,408 114,115 149,081 165,024 174,330 178,829Net income from continuing operations 305,721 421,309 315,709 217,615 284,293 314,697 332,442 341,023Income (loss) from discontinued operations, net 16,935 0 (627) 199,000 0 0 0 0Net Income 322,656 421,309 315,082 416,615 284,293 314,697 332,442 341,023

Less: NI attributable to noncontrolling interests 16,027 19,388 18,368 20,795 21,907 22,860 23,708 24,504Net Income attributable to Quanta Services 306,629 401,921 296,714 395,820 262,386 291,837 308,735 316,520

Year End Shares Outstanding (000) 212,777 214,929 219,668 161,967 152,277 147,437 143,098 140,867Net Earnings (Loss) per share - basic $1.44 $1.87 $1.35 $2.44 $1.72 $1.98 $2.16 $2.25

Quanta Services, Inc.Balance Sheet

Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019EAssetsCurrent assets:Cash and Cash Equivalents 394,701 488,777 190,515 350,849 347,545 499,466 737,535 947,148Accounts Receivable Net 1,328,081 1,439,115 1,812,539 1,726,545 1,818,898 1,898,041 1,968,396 2,034,490Earnings in excess of billings 342,777 213,478 290,447 263,702 277,807 289,895 300,641 310,735Inventories 38,261 31,877 38,921 41,118 43,317 45,202 46,877 48,451Prepaid expenses and other current assets 97,907 140,071 221,554 181,577 191,289 199,613 207,012 213,963Total current assets 2,201,727 2,313,318 2,553,976 2,563,790 2,678,857 2,932,217 3,260,461 3,554,788

Gross Property and Equipment 1,601,013 1,837,547 2,219,673 1,772,695 1,991,844 2,220,528 2,457,690 2,702,814less: accumulated depreciation 555,030 631,939 739,545 885,531 1,031,267 1,195,019 1,377,572 1,579,622Property and equipment, net 1,045,983 1,205,608 1,480,128 887,164 960,577 1,025,509 1,080,118 1,123,192Other assets, net 171,566 285,725 85,842 82,706 87,130 90,921 94,291 97,457Other Intangible assets, net 183,836 207,877 260,593 242,345 255,308 266,417 276,292 285,570Goodwill 1,537,645 1,780,717 1,931,485 1,931,485 1,931,485 1,931,485 1,931,485 1,931,485Total Assets 5,140,757 5,793,245 6,312,024 5,707,490 5,913,357 6,246,550 6,642,648 6,992,492

Liabilities and EquityCurrent Liabilities:Current maturities of ST and LT borrowing 9 2,234 8,876 7,924 5,528 8,086 73,849 5,056Accounts payable and accrued expenses 707,285 802,180 877,336 932,512 982,392 1,025,138 1,063,137 1,098,834Billings in excess of costs 173,885 239,106 251,113 241,404 254,317 265,382 275,219 284,460Total current liabilities 881,179 1,043,520 1,137,325 1,181,840 1,242,237 1,298,606 1,412,205 1,388,351

LT debt and notes payable 0 0 72,489 69,621 69,149 66,119 47,326 57,326Deferred income taxes 225,050 244,256 300,516 285,490 294,055 302,877 311,963 321,322Insurance and other non-curent liabilities 262,612 264,150 276,154 281,677 287,311 293,057 298,918 304,896Total Liabilities 1,368,841 1,551,926 1,786,484 1,818,628 1,892,751 1,960,658 2,070,412 2,071,895

Equity:Additional paid-in capital 3,287,088 3,416,587 3,592,908 3,709,678 3,830,242 3,954,725 4,083,253 4,215,959Retained earnings 668,156 1,070,077 1,366,791 1,762,611 2,024,997 2,316,834 2,625,569 2,942,088Accumulated other comprehensive income (loss) 14,453 (37,236) (123,290) (22,558) (23,764) (24,798) (25,717) (26,581)Treasury stock (203,149) (215,240) (321,936) (1,571,936) (1,821,936) (1,971,936) (2,121,936) (2,221,936)Total stockholders' equity 3,766,548 4,234,188 4,514,473 3,877,795 4,009,539 4,274,825 4,561,169 4,909,530Non-controlling interests 5,368 7,131 11,067 11,067 11,067 11,067 11,067 11,067Total Equity 3,771,916 4,241,319 4,525,540 3,888,862 4,020,606 4,285,892 4,572,236 4,920,597Total Liabilities & Stockholders Equity 5,140,757 5,793,245 6,312,024 5,707,490 5,913,357 6,246,550 6,642,648 6,992,492

Quanta Services, Inc.Cash Flow Statement

Fiscal Years Ending Dec. 31 2010 2011 2012 2013 2014Net income (loss) 155,557 144,416 322,656 421,309 315,082Income (loss) from discontinued operations - - (16,935) - 627Depreciation 107,507 116,068 120,303 134,110 158,110Amortization of intangible assets 38,568 29,953 37,691 27,515 35,907Equity in earnings of unconsolidated affiliates - - (2,084) (112,744) 332Non-cash interest expense 1,704 - - - -Amortization of debt issuance costs 642 901 904 1,081 1,094Amortization of deferred revenue (12,471) (11,415) (10,149) (9,025) (10,087)Loss (gain) on sale of property & equipment 4,650 854 (970) (2,448) (1,770)Non-cash loss on early extinguishment of debt 4,797 - - - -Foreign currency (gain) loss (328) 1,227 691 2,179 1,244Provision for (recovery of) doubtful accounts (142) 1,163 3,693 3,236 1,411Provision for contract receivable - - - - 102,460Non-cash portion of arbitration expense - - - - 10,518Deferred income taxes provision (benefit) 36,430 7,017 22,533 (16,470) 33,664Non-cash stock-based compensation 23,048 21,618 25,990 35,876 39,030Tax impact of stock-based equity awards (2,161) (1,365) (297) (3,723) (1,563)Accounts & notes receivable (8,536) (311,761) (341,825) (74,249) (231,974)Costs & estimated loss (earnings) in excess of billings on uncompleted contracts(66,481) (65,916) (150,486) (47,281) (53,428)Inventories (17,127) (18,529) 26,435 5,986 (4,025)Prepaid expenses & other current assets (12,274) 10,352 (12,599) (7,505) (36,484)Accounts payable & accrued expenses & other non-current liabilities(20,352) 221,528 123,143 36,015 (49,894)Billings in excess of costs & estimated earnings on uncompleted contracts10,462 77,683 26,624 48,849 5,699Other liabilities, net (3,235) (5,764) (8,479) 3,881 (5,129)Net cash flows from operating activities 240,258 218,030 166,839 446,592 310,824Proceeds from sale of property & equipment 25,651 9,903 12,362 14,794 14,428Additions of property & equipment (149,653) (172,005) (209,445) (263,558) (301,476)Cash paid for acquisitions, net of cash acquired (130,251) (79,660) (68,727) (283,837) (262,218)Investments in & return on equity from unconsolidated affiliates - (35,000) (53,750) 186,185 (3,127)Cash received from (paid for) other investments - (4,000) - (10,032) 6,214Cash withdrawn from restricted cash - - - 36,482 3,565Cash paid for other intangibles - - - - (252)Cash paid for non-compete agreement - (455) (1,541) - -Net cash flows from investing activities (254,253) (281,217) (321,101) (319,966) (542,866)Borrowings under credit facility - - 1,052,700 341,730 938,047Payments under credit facility - - (1,052,700) (341,730) (866,224)Proceeds from other long-term debt 1,183 4,343 - 23 394Payments on other long-term debt (3,438) (5,680) (56) (556) (30,448)Borrowings of short-term debt - - - - 5,056Payments on convertible subordinated notes (143,750) - - - -Debt issuance & amendment costs - (4,127) - (3,244) -Distributions to noncontrolling interest (2,395) (5,954) (17,970) (17,625) (14,432)Tax impact of stock-based equity awards 2,161 1,365 297 3,723 1,563Exercise of stock options 534 867 2,385 1,028 1,179Repurchase of common stock - (149,547) - - (93,482)Net cash flows from financing activities (145,705) (158,733) (15,344) (16,651) (58,347)Net cash provided by (used in) operating activities - discontinued operations- - (60,622) - -Net cash provided by (used in) investing activities - discontinued operations- - 307,522 - -Net cash provided by discontinued operations - - 246,900 - -Effect of foreign exchange rate changes on cash & cash equivalents(708) (1,952) 2,058 (15,899) (7,873)

Net increase (decrease) in cash & cash equivalents (160,408) (223,872) 79,352 94,076 (298,262)Cash & cash equivalents, beginning of year 699,629 539,221 315,349 394,701 488,777Cash & cash equivalents, end of year 539,221 315,349 394,701 488,777 190,515

Quanta Services, Inc.Cash Flow Statement

Fiscal Years Ending Dec. 31 2015E 2016E 2017E 2018E 2019ECash Flows from Operating Activities:Net income (loss) 395,820 262,386 291,837 308,735 316,520Adjustments to reconcile net income to net cash from operating activities:

Depreciation & Amortization (PPE) 145,986 145,736 163,752 182,553 202,050Amortization of Identifiable Intangibles

Adjustment for Deferred Taxes (15,026) 8,565 8,822 9,086 9,359Net Cash Flows from Operating Activities 526,780 416,687 464,411 500,374 527,929

Working CapitalAccounts Receivable Net 85,994 (92,353) (79,143) (70,355) (66,094)Costs and estimated earnings in excess of billingson uncompleted contracts 26,745 (14,105) (12,088) (10,746) (10,095)Inventories (2,197) (2,199) (1,885) (1,676) (1,574)Prepaid expenses and other current assets 39,977 (9,713) (8,323) (7,399) (6,951)Accounts payable and accrued expenses 55,176 49,880 42,746 37,999 35,698Billings in excess of costs and estimated earningson uncompleted contracts (9,709) 12,913 11,066 9,837 9,241Insurance and other non-curent liabilities 5,523 5,634 5,746 5,861 5,978Net Cash Flows from Working Capital 201,510 (49,944) (41,882) (36,478) (33,797)

Capital Expenditures 446,978 (219,149) (228,685) (237,161) (245,125)Other assets, net 3,136 (4,424) (3,791) (3,370) (3,166)Other Intangible assets, net 18,248 (12,963) (11,109) (9,875) (9,277)Goodwill 0 0 0 0 0

Net Cash Flows from Investing Activities 468,362 (236,536) (243,585) (250,407) (257,568)

Cash flows from financing activities:Current maturities of long-term debt and short-term borrowings(952) (2,396) 2,558 65,763 (68,793)LT debt and notes payable, net of current maturities (2,868) (472) (3,030) (18,793) 10,000Change in Additional paid-in capital 116,770 120,565 124,483 128,529 132,706Change in AOCI 100,732 (1,207) (1,034) (919) (864)Stock Repurchases (1,250,000) (250,000) (150,000) (150,000) (100,000)Change in non-controlling interests 0 0 0 0 0Net cash flows from financing activities (1,036,318) (133,510) (27,023) 24,579 (26,951)

Net increase (decrease) in cash & cash equivalents160,334 (3,304) 151,921 238,068 209,613Cash & cash equivalents at beginning of year 190,515 350,849 347,545 499,466 737,535Cash & cash equivalents at end of year 350,849 347,545 499,466 737,535 947,148

Quanta Services, Inc.Common Size Income Statement

Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019ERevenues 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Operating Expenses:Cost of Services 82.13% 81.76% 82.28% 84.74% 84.11% 83.65% 83.39% 83.27%Decpreciation 2.03% 2.06% 2.01% 1.93% 1.83% 1.97% 2.12% 2.27%Amortization of Intangibles 0.64% 0.42% 0.46% 0.48% 0.46% 0.46% 0.46% 0.45%Gross Income 15.20% 15.76% 15.25% 12.85% 13.60% 13.93% 14.03% 14.01%

3.00% -0.75% -0.55% -0.30% -0.15%

SGA 7.35% 7.68% 9.20% 8.45% 8.15% 8.15% 8.15% 8.15%Operating Income (EBIT) 7.86% 8.08% 6.06% 4.40% 5.45% 5.78% 5.88% 5.86%

Interest Expense -0.06% -0.04% -0.06% -0.04% -0.04% -0.04% -0.04% -0.06%Interest Income 0.02% 0.05% 0.05% 0.05% 0.05% 0.04% 0.04% 0.04%Loss on early extinguishment of debt, net 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Equity in earnings (losses) of unconsolidated affiliates, icluding gain on sale of investment0.04% 1.73% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Other income (expense), net -0.01% -0.02% -0.01% -0.01% -0.01% -0.01% -0.01% -0.01%Income before income tax provision 7.85% 9.80% 6.03% 4.39% 5.44% 5.77% 5.88% 5.83%

Income tax provision 2.68% 3.34% 2.00% 1.51% 1.87% 1.98% 2.02% 2.01%Net income from continuing operations 5.16% 6.46% 4.02% 2.88% 3.57% 3.78% 3.85% 3.83%Income (loss) from discontinued operations, net 0.29% 0.00% -0.01% 0.00% 0.00% 0.00% 0.00% 0.00%Net Income 5.45% 6.46% 4.01% 5.51% 3.57% 3.78% 3.85% 3.83%

Less: NI attributable to noncontrolling interests 0.27% 0.30% 0.23% 0.27% 0.27% 0.27% 0.27% 0.27%Net Income attributable to common stock 5.18% 6.16% 3.78% 5.23% 3.29% 3.51% 3.58% 3.55%

COGS % Change

Quanta Services, Inc.Common Size Balance Sheet

Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019EAssetsCurrent assets:Cash and Cash Equivalents 6.67% 7.49% 2.43% 4.64% 4.36% 6.01% 8.55% 10.63%Accounts Receivable Net 22.43% 22.06% 23.09% 22.82% 22.82% 22.82% 22.82% 22.82%Earnings in excess of billings 5.79% 3.27% 3.70% 3.49% 3.49% 3.49% 3.49% 3.49%Inventories 0.65% 0.49% 0.50% 0.54% 0.54% 0.54% 0.54% 0.54%Prepaid expenses and other current assets 1.65% 2.15% 2.82% 2.40% 2.40% 2.40% 2.40% 2.40%Total current assets 37.19% 35.46% 32.53% 33.89% 33.62% 35.26% 37.81% 39.88%

Gross Property and Equipment 27.04% 28.17% 28.27% 23.43% 24.99% 26.70% 28.50% 30.32%less: accumulated depreciation 9.38% 9.69% 9.42% 11.71% 12.94% 14.37% 15.97% 17.72%Property and equipment, net 17.67% 18.48% 18.85% 11.73% 12.05% 12.33% 12.52% 12.60%Other assets, net 2.90% 4.38% 1.09% 1.09% 1.09% 1.09% 1.09% 1.09%Other Intangible assets, net 3.11% 3.19% 3.32% 3.20% 3.20% 3.20% 3.20% 3.20%Goodwill 25.97% 27.30% 24.60% 25.53% 24.24% 23.23% 22.40% 21.67%Total Assets 86.83% 88.81% 80.40% 75.45% 74.20% 75.12% 77.02% 78.45%

Liabilities and EquityCurrent Liabilities:Current maturities of long-term debt and short-term borrowings0.00% 0.03% 0.11% 0.10% 0.07% 0.10% 0.86% 0.06%Accounts payable and accrued expenses 11.95% 12.30% 11.17% 12.33% 12.33% 12.33% 12.33% 12.33%Billings in excess of costs 2.94% 3.67% 3.20% 3.19% 3.19% 3.19% 3.19% 3.19%Total current liabilities 14.88% 16.00% 14.49% 15.62% 15.59% 15.62% 16.38% 15.58%

LT debt and notes payable, net of current maturities 0.00% 0.00% 0.92% 0.92% 0.87% 0.80% 0.55% 0.64%Deferred income taxes 3.80% 3.74% 3.83% 3.77% 3.69% 3.64% 3.62% 3.60%Insurance and other non-curent liabilities 4.44% 4.05% 3.52% 3.72% 3.61% 3.52% 3.47% 3.42%Total Liabilities 23.12% 23.79% 22.75% 24.04% 23.75% 23.58% 24.01% 23.24%

Equity:Additional paid-in capital 55.52% 52.38% 45.76% 49.04% 48.06% 47.56% 47.35% 47.30%Retained earnings 11.29% 16.41% 17.41% 23.30% 25.41% 27.86% 30.44% 33.01%Accumulated other comprehensive income (loss) 0.24% -0.57% -1.57% -0.30% -0.30% -0.30% -0.30% -0.30%Treasury stock -3.43% -3.30% -4.10% -20.78% -22.86% -23.71% -24.60% -24.93%Total stockholders' equity 63.62% 64.91% 57.50% 51.26% 50.31% 51.41% 52.89% 55.08%Non-controlling interests 0.09% 0.11% 0.14% 0.15% 0.14% 0.13% 0.13% 0.12%Total Equity 63.71% 65.02% 57.64% 51.41% 50.45% 51.54% 53.02% 55.20%Total Liabilities & Stockholders Equity 86.83% 88.81% 80.40% 75.45% 74.20% 75.12% 77.02% 78.45%

Quanta Services, Inc.Value Driver Estimation

Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019ENOPLATNet Sales 5,920,269 6,522,842 7,851,250 7,564,432 7,969,055 8,315,802 8,624,046 8,913,621Operating Expenses (5,297,153) (5,834,289) (7,181,658) (7,049,544) (7,352,253) (7,633,694) (7,895,013) (8,148,959)Depreciation & Amortization (120,303) (134,110) (158,110) (145,986) (145,736) (163,752) (182,553) (202,050)Implied Interest on Op Leases 3,408 5,794 8,689 6,951 7,160 7,374 7,596 7,823EBITA 506,221 560,237 520,171 375,853 478,226 525,730 554,076 570,435

Tax Provision 158,859 217,940 157,408 114,115 149,081 165,024 174,330 178,829Marginal Tax Rate 34.2% 34.1% 33.3% 34.2% 34.2% 34.2% 34.2% 34.2%Tax Shield on Interest Expense 1,281 910 1,587 1,141 1,087 1,047 1,041 1,699Tax on Interest Income (503) (1,153) (1,246) (1,215) (1,240) (1,265) (1,290) (1,316)Tax on Loss on early extinguishment of debt, net 0 0 0 0 0 0 0 0Tax on Equity in earnings (losses) of unconsolidated affiliates, icluding gain on sale of investment(713) (38,446) 111 0 0 0 0 0Tax on Other income (expense), net 120 387 367 384 392 400 408 416Tax Shield on Implied Lease Interest 1,166 1,976 2,893 2,377 2,449 2,522 2,598 2,676Total Adjusted Taxes 160,210 181,614 161,120 116,802 151,769 167,729 177,086 182,304

Δ In Deferred Tax Liability (8,594) 19,206 56,260 (15,026) 8,565 8,822 9,086 9,359

NOPLAT 337,417 397,829 415,311 244,025 335,021 366,823 386,076 397,490Invested CapitalCurrent Operating Assets

Normal Cash 296,013 326,142 392,563 378,222 398,453 415,790 431,202 445,681Accounts Receivable Net 1,328,081 1,439,115 1,812,539 1,726,545 1,818,898 1,898,041 1,968,396 2,034,490

Earnings in excess of billings 342,777 213,478 290,447 263,702 277,807 289,895 300,641 310,735Inventories 38,261 31,877 38,921 41,118 43,317 45,202 46,877 48,451Prepaid expenses and other current assets 97,907 140,071 221,554 181,577 191,289 199,613 207,012 213,963

Less Current Operating LiabilitiesAccounts payable and accrued expenses 707,285 802,180 877,336 932,512 982,392 1,025,138 1,063,137 1,098,834

Billings in excess of costs 173,885 239,106 251,113 241,404 254,317 265,382 275,219 284,460Net Operating Working Capital 1,085,701 937,449 1,367,100 1,194,552 1,258,449 1,313,206 1,361,883 1,407,612

Net PPE 1,045,983 1,205,608 1,480,128 887,164 960,577 1,025,509 1,080,118 1,123,192

PV of Operating Leases 83,130 141,310 211,922 169,538 174,624 179,862 185,258 190,816Other assets, net 171,566 285,725 85,842 82,706 87,130 90,921 94,291 97,457Other Intangible assets, net 183,836 207,877 260,593 242,345 255,308 266,417 276,292 285,570Net Other Operating Assets 438,532 634,912 558,357 494,589 517,062 537,201 555,842 573,843

Insurance and other non-curent liabilities 262,612 264,150 276,154 281,677 287,311 293,057 298,918 304,896Net Other Operating Liabilities 262,612 264,150 276,154 281,677 287,311 293,057 298,918 304,896

Invested Capital 2,307,604 2,513,819 3,129,431 2,294,628 2,448,778 2,582,860 2,698,925 2,799,751

DriversNOPLAT 337,417 397,829 415,311 244,025 335,021 366,823 386,076 397,490Beginning Invested Capital 1,856,860 2,307,604 2,513,819 3,129,431 2,294,628 2,448,778 2,582,860 2,698,925Return on Invested Capital (ROIC) 18.17% 17.24% 16.52% 7.80% 14.60% 14.98% 14.95% 14.73%Change in Invested Capital 450,744 206,215 615,611 (834,803) 154,150 134,082 116,066 100,826Free Cash Flow (FCF) (113,327) 191,614 (200,300) 1,078,828 180,872 232,741 270,010 296,664Economic Profit (EP) 172,272 192,595 191,737 (34,301) 130,942 149,034 156,361 157,453

Net Income 306,629 401,921 296,714 395,820 262,386 291,837 308,735 316,520Average Equity 3,574,250 4,000,368 4,374,331 4,196,134 3,943,667 4,142,182 4,417,997 4,735,350ROE (Net Income/Average Equity) 8.58% 10.05% 6.78% 9.43% 6.65% 7.05% 6.99% 6.68%

Quanta Services, Inc.Weighted Average Cost of Capital (WACC) EstimationCost of Equity 9.27%Weight of Equity 94.29%Cost of Debt 2.73%Weight of Debt 5.71%WACC 8.89% Equity Weight

Market Cap (000s) 4,840,000

Pre-tax Cost of Debt 4.10% PV of Debt (000s) 81,365PV of Op Lease (000s) 211,922

Bloomberg WeeklyRisk Free Rate 3.06% Term BetaBeta 1.28 1 yr 1.418Market Premium 4.85% 2 yr 1.429Cost of Equity 9.27% 3 yr 1.347

4 yr 1.0835 yr 1.122Ave 1.28

Cost of Debt

Cost Of Equity

Quanta Services, Inc.Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth 3.00% CV ROIC 14.73% WACC 8.89% Cost of Equity 9.27%

Fiscal Years Ending Dec. 31 2015E 2016E 2017E 2018E 2019E

DCF Model 1 2 3 4 5NOPLAT 244,025 335,021 366,823 386,076 397,490Begin IC 3,129,431 2,294,628 2,448,778 2,582,860 2,698,925Ending IC 2,294,628 2,448,778 2,582,860 2,698,925 2,799,751Δ Invested Capital (834,803) 154,150 134,082 116,066 100,826Free Cash Flow 1,078,828 180,872 232,741 270,010 296,664ROIC 7.80% 14.60% 14.98% 14.95% 14.73%

FCF 1,078,828 180,872 232,741 270,010 296,664Continuing Value 5,370,415PV of FCF 990,715 152,533 180,245 192,029 3,819,400

Value of Operating Assets 5,334,922+ Excess Cash- Total Debt 81,365-PV of Operating Leases 211,922-PV of ESOP 16,224Value of Equity 5,025,411Shares Outstanding 219,668Intrinsic Value (12/31/14) $22.88Price Today $24.74

EP ModelNOPLAT 244,025 335,021 366,823 386,076 397,490Beginning IC 3,129,431 2,294,628 2,448,778 2,582,860 2,698,925ROIC 7.80% 14.60% 14.98% 14.95% 14.73%Economic Profit (34,301) 130,942 149,034 156,361 157,453Continuing Value 2,671,490

(31,499) 110,426 115,418 111,203 1,899,944

PV of EP 2,205,492Beginning IC 3,129,431Value of Operating Assets 5,334,922+ Excess Cash- Total Debt 81,365-PV of Operating Leases 211,922-PV of ESOP 16,224Value of Equity 5,025,411Shares Outstanding 219,668Intrinsic Value (12/31/14) $22.88Price Today $24.74

Present Value of EP discounted byWACC

Quanta Services, Inc.Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending Dec. 31 2015E 2016E 2017E 2018E 2019E

EPS 2.44$ 1.72$ 1.98$ 2.16$ 2.25$

Key Assumptions CV growth 3.00% CV ROE 6.68% Cost of Equity 9.27%

Future Cash Flows P/E Multiple (CV Year) 8.79 EPS (CV Year) 2.25$ Future Stock Price $19.76 Dividends Per Share Future Cash Flows $0.00 $0.00 $0.00 $0.00 $0.00

Discounted Cash Flows $0.00 $0.00 $0.00 $0.00 $13.86

Intrinsic Value (12/31/14) 13.86$Price Today 14.99$

Quanta Services, Inc.Relative Valuation Models

EPS EPS Est. 5yrTicker Company Price 2015E 2016E P/E 15 P/E 16 EPS gr. PEG 15 PEG 16MTZ Mastec Inc. $17.24 $0.77 $1.50 22.4 11.5 4.1 5.46 2.80CBI Chicago Bridge & Iron $42.26 $5.83 $5.78 7.2 7.3 10.6 0.69 0.69DY Dycom Industries $74.89 $3.25 $3.78 23.0 19.8 30.3 0.76 0.65MYRG MYR Group, Inc. $27.00 $1.64 $1.86 16.5 14.5 6.3 2.60 2.29

Average 17.3 13.3 2.4 1.6

PWR Quanta Services Inc. $21.27 $ 1.18 $1.72 18.0 12.3 13.7 1.3 0.9

Implied Value: Relative P/E (EPS15) $ 20.40 Relative P/E (EPS16) 22.89$

Quanta Services, Inc.Key Management Ratios

Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E

Liquidity RatiosCash Ratio (Cash + ST)/Current L 44.79% 46.84% 16.75% 29.69% 27.98% 38.46% 52.23% 68.22%Current Ratio 249.86% 221.68% 224.56% 216.93% 215.65% 225.80% 230.88% 256.04%Operating Cash Flows/Current L 13.97% 3.45% -4.39% 44.57% 33.54% 35.76% 35.43% 38.03%

Activity or Asset-Management RatiosAsset Turnover Ratio (sales/ave assets) 2.98 2.89 3.23 2.96 3.04 2.96 2.79 2.62Receivables Turnover (sales/ave rec) 4.95 4.71 4.83 4.27 4.50 4.47 4.46 4.45Fixed Asset Turnover (Sales/ave PPE) 5.87 5.79 5.85 6.39 8.63 8.37 8.19 8.09

Financial Leverage RatiosDebt Ratio (total debt/total assets) 0.00% 0.00% 0.04% 1.29% 1.36% 1.26% 1.19% 1.82%Debt/Equity Ratio (Total liabilities/total equity) 38.65% 36.29% 36.59% 39.48% 46.77% 47.08% 45.75% 45.28%

124.2 197.5 99.8 99.7 136.5 156.9 166.7 105.1

Profitability RatiosEBIT Margin 7.86% 8.08% 6.06% 4.40% 5.45% 5.78% 5.88% 5.86%ROA (NI/Ave Assets) 6.23% 7.35% 4.90% 6.59% 4.52% 4.80% 4.79% 4.64%ROE (NI/Ave Equity) 8.56% 10.03% 6.77% 9.41% 6.63% 7.03% 6.97% 6.67%

Total Payout Ratio 2.17% 3.01% 35.96% 315.80% 95.28% 51.40% 48.59% 31.59%

Interest Coverage Ratio (operatingincome/interest expense)

24.74$ 8.00% 8.50% 9.00% 9.50% 10.00% 24.74$ 13.50% 14.00% 14.50% 15.00% 15.50%2.50% 27.75$ 25.52$ 23.63$ 22.01$ 20.60$ 2.50% 23.67$ 23.81$ 23.95$ 24.07$ 24.19$2.75% 28.32$ 25.95$ 23.96$ 22.26$ 20.80$ 2.75% 23.97$ 24.14$ 24.29$ 24.43$ 24.57$3.00% 28.95$ 26.42$ 24.32$ 22.54$ 21.01$ 3.00% 24.30$ 24.49$ 24.66$ 24.83$ 24.98$3.25% 29.64$ 26.94$ 24.71$ 22.84$ 21.24$ 3.25% 24.66$ 24.87$ 25.07$ 25.25$ 25.42$3.50% 30.41$ 27.51$ 25.14$ 23.16$ 21.48$ 3.50% 25.05$ 25.29$ 25.51$ 25.72$ 25.91$

24.74$ 4.00% 4.20% 4.40% 4.60% 4.80% 24.75$ 6.00% 6.50% 7.00% 7.50% 8.00%8.00% 30.42$ 30.40$ 30.37$ 30.34$ 30.32$ 8.00% 31.32$ 29.74$ 28.16$ 26.58$ 25.00$8.50% 27.87$ 27.85$ 27.83$ 27.81$ 27.79$ 8.50% 28.63$ 27.16$ 25.69$ 24.22$ 22.75$9.00% 25.74$ 25.73$ 25.71$ 25.70$ 25.68$ 9.00% 26.39$ 25.01$ 23.63$ 22.25$ 20.88$9.50% 23.94$ 23.93$ 23.92$ 23.91$ 23.90$ 9.50% 24.49$ 23.19$ 21.89$ 20.59$ 19.29$

10.00% 22.40$ 22.39$ 22.38$ 22.38$ 22.37$ 10.00% 22.86$ 21.63$ 20.39$ 19.16$ 17.93$

24.75$ 84.00% 84.50% 85.00% 85.50% 86.00% 24.74$ 5.00% 15.00% 25.00% 35.00% 45.00%7,100,000$ 27.94$ 25.82$ 23.70$ 21.58$ 19.46$ 4.00% 24.55$ 27.48$ 31.23$ 36.24$ 43.25$7,300,000$ 27.92$ 25.80$ 23.68$ 21.56$ 19.43$ 4.50% 24.55$ 27.29$ 30.77$ 35.31$ 41.51$7,500,000$ 27.90$ 25.78$ 23.65$ 21.53$ 19.40$ 5.00% 24.54$ 27.11$ 30.32$ 34.44$ 39.91$7,700,000$ 27.89$ 25.76$ 23.63$ 21.50$ 19.37$ 5.50% 24.52$ 26.93$ 29.89$ 33.61$ 38.44$7,900,000$ 27.87$ 25.74$ 23.61$ 21.47$ 19.34$ 6.00% 24.51$ 26.75$ 29.46$ 32.82$ 37.09$20

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