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Dycom Hits 52-Week High on Solid Demand for Telecom Networks

Zacks Equity Research
·4 min read

Dycom Industries, Inc. DY has been rallying lately, post its impressive second-quarter fiscal 2021 (ended Jul 25, 2020) earnings release. In fact, the company hit a new 52-week high of $57.61 during the session on Aug 28. The stock pulled back to end the trading session at $57.52, gaining 6.9% from the previous day’s closing price.

The surge can primarily be attributable to rising demand for the telecom industry amid the pandemic, as work from home, telemedicine, distance learning and other essential applications require dramatically increased rural network investment. Also, consistent contract flows owing to stable demand for its services and the $1-trillion infrastructure bill, proposed by the Trump administration to revive the world’s largest economy, are encouraging.

Shares of Dycom have advanced a notable 104.4% over the past six months against the Zacks Building Products - Heavy Construction industry’s 0.2% fall. The company also outperformed the Zacks Construction sector and S&P 500’s 13.8% and 13.5% respective rally in the same time frame.



Meanwhile, earnings estimates for the fiscal third quarter and 2021 have gained 18.5% and 19% over the past seven days. Notably, earnings estimates for the next year have increased 11.7% in the past few days. This indicates 25.3% year-over-year growth. Notably, the company’s earnings surpassed analysts’ expectations in six out of the trailing eight quarters.

This Zacks Rank #1 (Strong Buy) company has an impressive Momentum Score of A. Back-tested results show that stocks with Momentum Style Scores of A or B when combined with a Zacks Rank #1 or 2 (Buy) handily outperform other stocks. You can see the complete list of today’s Zacks #1 Rank stocks here.

Let’s dig into the factors that clearly reflect why analysts’ are more inclined toward this stock.

Strong Telecommunication Services to Aid Overall Business

Dycom recently reported solid earnings for the fiscal second quarter, which surpassed the Zacks Consensus Estimate by 71% and increased 8.3% from the year-ago period despite soft revenues. The company experienced broad-based improvement in the services performed despite the complexity of a large customer program. Also, improved operating leverage and lower-than-expected disruptions from the COVID-19 pandemic helped it record higher year-over-year earnings.

Dycom’s overall performance is highly dependent on contract flows from the telecom industry. The segment, which accounts for 90.6% of total contract revenues, has been witnessing solid demand for network bandwidth and mobile broadband. Presently, a large number of service class people are working from home and students are preferring e-education. Also, other essential applications like telemedicine needs high-capacity telecommunications access.

A number of major industry participants are deploying significant wireline networks that are designed to provision bandwidth enabling 1-gigabit speeds. Dycom is providing program management, planning, engineering and design, aerial underground and wireless construction, along with fulfillment services for 1-gigabit deployments to customers who recently initiated broad fiber deployments, as well as those looking for the resumption of broad deployments.

Increased demand for its services boosted investors’ sentiments in recent times, despite a challenging environment stemming from coronavirus woes. The company has undertaken several strategic initiatives to expand market share on the back of a strong financial position and diligent operational execution. Its strong liquidity positions it well to undertake strategic initiatives like investments and acquisitions.

This apart, Trump’s optimistic view for spending almost $1 trillion on infrastructure that includes roads, bridges, highways and railways, 5G wireless infrastructure as well as rural broadband is encouraging. His vision of cashing in on the low interest rate environment that allows the U.S. government to borrow at a minimal rate will further aid Dycom and other industry players like EMCOR Group, Inc. EME, Great Lakes Dredge & Dock Corporation GLDD, as well as MasTec, Inc. MTZ .

Potential Risks

Macroeconomic uncertainty resulting from the COVID-19 outbreak has been influencing some of Dycom’s customer plans. In the last two quarters, the company witnessed increased demand from just two of its top five customers. Also, it witnessed uncertainty in the overall municipal environment due to coronavirus-led disruptions. Notably, its fiscal second-quarter backlog remained low sequentially. The company expects contract revenues and margins to range from in line to modestly lower sequentially for the fiscal third quarter.

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