Investments in updating the electrical grid is entering a new phase of growth, which could benefit one stock in particular

Published Mon, Jul 10 20234:06 PM EDTUpdated Mon, Jul 10 20234:36 PM EDT

The effort to upgrade the U.S. power grid is heating up rapidly, according to UBS, which says the trend could be a driver for Quanta Services stock. UBS reiterated a buy rating on the infrastructure company, albeit with an updated $228 price target, up from $195. The forecast implies about 18% upside for the stock from Friday's $193.60 close. Quanta both plans and implements infrastructure projects from electric power, pipelines and telecommunications companies. The company is amply exposed to sectors that are set to benefit from the Biden administration's Inflation Reduction Act that was signed into law earlier this year . PWR YTD mountain Shares of Quanta Services have added about 41% from the start of the year. Analyst Steven Fisher wrote in a Monday note that "electric grid investment is entering a new phase of growth, with renewables activity accelerating and large transmission projects gaining momentum." Fisher attributed the growth of these large-scale projects to the IRA, which contained about $350 billion in funds for investments into renewable energy and updating the power grid. "For Quanta, we believe the implications of this new phase include potentially faster top-line growth, higher margins and increasing scope on projects," Fisher said. "In our view, some large projects can carry more risk factors, but we observe Quanta taking steps to mitigate risk, including doing more engineering work, increasing control over procurement and being more selective with customers/projects." In addition to large transmission projects already planned, Fisher updated the list to include Oregon Public Utility Commission's Boardman to Hemingway , as well as Colorado's Power Pathway and Ready Wyoming . Most of the projects on Quanta's horizon involve updating power grids. "We expect this new wave of large projects to drive revs and margins higher for PWR; our analysis suggests a higher mix of large transmission and solar projects could present 40-50bps or more of margin upside to both the Electric and Renewables segment guidance (at mid points of guidance)," Fisher added. On Monday, Quanta shares were trading up more than 3%. The stock has gained about 40% since the start of the year. — CNBC's Michael Bloom contributed reporting.