Dycom (DY) Looks Promising: Time to Invest in the Stock?
Dycom Industries, Inc. DY is well poised for growth in the near term, given funding from Federal stimulus bills passed over the past few years despite uncertain broader economic conditions. The company has been gaining from fiber network deployment and higher demand arising from broad constructions or enhancement of significant wireline networks across broad sections of the country to provide gigabit network speeds to individual consumers and businesses either directly or through a wireless mode using 5G technologies.
This Palm Beach Gardens, FL-based specialty contracting service provider’s shares have risen 13.2% so far this year, underperforming the Zacks Building Products - Heavy Construction industry’s 23% rise.
Nonetheless, the fiscal 2024 earnings estimates for this Zacks Rank #1 (Strong Buy) company have moved north from $6.11 to $6.33 per share over the past seven days. This positive trend signifies bullish analysts’ sentiments, indicating robust fundamentals and the expectation of outperformance in the near term.
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Let’s delve deeper into the major driving factors.
Federal Funding for Infrastructure, a Key Catalyst: Dycom and many other infrastructure stocks have been in the spotlight, given the U.S. administration’s endeavor to boost the infrastructure of the country. Over the past few years, the Federal government has passed many notable bills to fund infrastructure projects related to roads, bridges, clean energy, broadband networks, and more.
Apart from the passage of the Infrastructure Investment and Jobs Act in November 2021 and the Inflation Reduction Act (IRA) in August 2022, the passage of the Rural Digital Opportunity Fund allocates $20 billion for rural broadband deployment, which is beneficial for companies like Dycom.
Fiber Network Deployment: Nowadays, key industry players, like Dycom, have been constructing or upgrading significant wireline networks across broad sections of the country. These wireline networks are generally designed to provide gigabit network speeds to individual consumers and businesses directly or wirelessly using 5G technologies.
Notably, a single high-capacity fiber network can cost-effectively deliver services to both consumers and businesses. This enables multiple revenue streams from a single investment. This view is increasing the appetite for fiber deployments and has been creating opportunities.
Increasing access to high-capacity telecommunications continues to be crucial for society, especially in rural America. The Infrastructure Investment and Jobs Act includes more than $40 billion for the construction of rural communications networks in unserved and underserved areas across the country. In addition, substantially, all states are commencing programs that will provide funding for telecommunications networks even prior to the initiation of funding under the Infrastructure Act.
Dycom has been providing program management, planning, engineering and design, aerial, underground and wireless construction and fulfillment services for gigabit deployments. These deployments include networks consisting entirely of wired network elements and converged wireless/wireline multi-user networks. Fiber network deployment opportunities are increasing in rural America as new industry participants respond to emerging societal initiatives.
Solid Backlog Level: Dycom’s backlog at the end of the fiscal first quarter totaled $6.316 billion compared with $6.141 billion at the fourth quarter of fiscal 2023-end. Of the backlog, $3.482 billion is projected to be completed in the next 12 months. Backlog activity during the fiscal first quarter reflected solid performance as it booked new work and renewed existing work. Dycom expects considerable opportunities across a broad array of customers.
Higher Earnings Growth Rate: Earnings growth is also a key factor in stock valuation. The Zacks Consensus Estimate for fiscal 2024 earnings of $6.33 per share indicates 41% year-over-year growth. The solid growth rate depicts the stock's promising future.
Solid Return on Equity (ROE): DY’s superior ROE is also indicative of its growth potential. The company’s ROE currently stands at 20%, higher than the industry’s 7.8%. This indicates efficiency in using shareholders’ funds and the ability to generate profit with minimum capital usage.
3 Top-Ranked Construction Stocks Hogging in the Limelight
Other top-ranked stocks that warrant a look in the Construction sector are Willdan Group, Inc. WLDN, Sterling Infrastructure, Inc. STRL and Howmet Aerospace, Inc. HWM.
Willdan Group is a nationwide provider of professional, technical and consulting services to utilities, government agencies and private industry. WLDN’s expected earnings growth rate for 2023 is 39.8%.
Willdan Group presently sports a Zacks Rank #1. Shares of the company have gained 6.2% year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.
Sterling Infrastructure currently carries a Zacks Rank #2 (Buy), provides transportation, e-infrastructure and building solutions.
STRL’s expected earnings growth rate for 2023 is 11.4%. Shares of the company have gained 62.1% year to date.
Howmet Aerospace presently holds a Zacks Rank #2, is a global manufacturer of engineered products serving the aerospace, defense and commercial transportation industries. The company is expected to benefit from higher aircraft production rates and ease of supply chains in the transportation market. Importantly, share gains in the titanium aerospace market are expected to act as a major growth tailwind.
HWM’s earnings for 2023 are expected to grow 20.7%. Shares of the company have gained 16.7% year to date.
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Dycom Industries, Inc. (DY) : Free Stock Analysis Report
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