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Dycom Industries Gains on Earnings Beat

Shares of engineering and construction company Dycom Industries Inc. (NYSE:DY) are up more than 20% following the announcement of its first-quarter 2021 results on Tuesday morning. Non-GAAP adjusted earnings of 36 cents beat Zacks estimate of a net loss of 4 cents. Revenue also surpassed expectations, triggering a sharp rise in the stock price from $32.06 per share to about $38.70 at the time of writing.

The company's top-line growth slowed significantly in fiscal 2019 compared to the previous periods, but it ticked up again in fiscal 2020. It remains to be seen whether it can continue to grow from here. Despite the earnings and revenue beat, things are not looking great for fiscal 2021 based on the latest results.

Highlights from the most recent quarter

For the quarter ended April 25, Dycom reported contract revenue of $814.3 million. This reflected a significant decline from contract revenue of $833.7 million in the prior-year quarter.

The company's non-GAAP adjusted Ebitda also failed to build on last year's growth, falling short of $73.6 million with $69.9 million. The GAAP net loss of $1.03 per share also compared dismally to earnings of 45 cents per share reported in the prior-year quarter.

Much of the GAAP loss is attributed to a pre-tax goodwill impairment charge of $53.3 million against one of the company's main revenue contributors. The unit deals with installations in third-party premises and managed to bring in just 4% of the total revenue in the first quarter. Dycom's management pointed to the adverse effects of Covid-19 as part of the reason for the underperformance.

The company is looking to improve its debt position by purchasing all its outstanding notes with cash on hand. Based on the quarterly results, it had $643.9 million worth of cash and cash equivalents. Its revolving credit line stood at $675 million, while the term loan was $438.8 million. The principal amount of notes which it plans to purchase using cash was $293 million.

The company's total debt has grown significantly from the figures posted at the end of the fiscal 2020.

At the end of January, the company had $54 million in cash against total debt of $937 million. The figures have now bumped up to $643.9 million and $1.41 billion.

From a valuation perspective, the post-earnings rally pushed shares of Dycom to trade at a price-earnings ratio of about 21. Prior to this, the ratio evenly matched Quanta Services Inc.'s (NYSE:PWR) equivalent of about 15. MasTec Inc. (NYSE:MTZ) had and still continues to have a more compelling ratio of 6.39. The next few months will be interesting to watch given Tuesday's rally.

Disclosure: No positions in the stocks mentioned.

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This article first appeared on GuruFocus.