Morningstar

For MasTec and Quanta, the Market Is Overestimating Data Center and Grid Tailwinds

Lowering fair value estimates as short-term demand is outweighed by a more conservative outlook for margin expansion.

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We are transferring coverage of Quanta Services and MasTec, two engineering and construction firms serving the utility, telecommunications, oil and gas, and renewable energy markets.

The bottom line: We are lowering our fair value estimates for Quanta Services to $400 per share and MasTec to $240 per share to reflect a more conservative view of margin expansion. We maintain our no-moat ratings for both companies, along with an Exemplary Capital Allocation Rating for Quanta and a Standard Capital Allocation Rating for MasTec.

  • Our no-moat ratings reflect the structural characteristics of the E&C industry, where low barriers to entry, significant customer bargaining power, and the relatively standardized nature of many projects make it difficult for firms to maintain excess returns over time.
  • Shares have rallied sharply over the past few months as investors have increasingly viewed both companies as key beneficiaries of artificial intelligence-driven data center investment and accelerating electricity demand. While these trends should support strong near-term demand, we view current conditions as cyclically favorable and expect competition to gradually erode excess returns.

Long view: We see two potential long-term outcomes, both of which could pressure the businesses. Electric infrastructure spending could moderate as the current cycle matures, or maintained investment could attract more competition, shifting bargaining power toward customers and pressuring contract terms and margins.

  • We assign both companies a Very High Uncertainty Rating given the risks around the durability of end market demand and the potential for competition to pressure long-term revenue growth and margins.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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