Dycom's (DY) Stock Gains 32% in the Past 3 Months: Here's Why

Zacks Equity Research

6 June 2024 at 10:29 am·5-min read

Dycom Industries, Inc. DY has been rallying of late. This Florida-based specialty contracting service provider’s stock soared 31.8% in the past three months versus the Zacks Building Products - Heavy Construction industry’s 17.3% growth. It has also handily outpaced the Zacks Construction sector’s 3.9% decline and the S&P 500 Index’s 3.3% rise in the same time frame.

DY has been riding on a solid backlog level and funding from Federal stimulus bills passed over the past few years. Also, the company is seeing significant opportunities, as some major industry participants are deploying wireline networks to offer bandwidth-enabling 1-gigabit speeds using 5G technologies.

Although lower contributions from three of its top five customers have put pressure on the top line to some extent, strong demand for Lumen, Charter and all other customers is encouraging.

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A Quick Glance at Estimates & Historical Performance

Estimates for this Zacks Rank #1 (Strong Buy) company’s fiscal 2025 earnings per share (EPS) have increased to $7.78 from $7.62 in the past seven days. Impressively, the estimated figure reflects a 5.6% year-over-year increase on 9.3% higher contract revenues.

The company also has an impressive earnings surprise history, having topped the consensus estimate in three of the trailing four quarters and missed once, with an average of 30.2%. The company is estimated to generate an average EPS growth rate of 11.7% in the next five years.

Adding more to the blissfulness, Dycom has a Momentum Score of A, which means the company will continue to outperform its industry in the future.

Let's discuss the factors that are supporting these impressive numbers and future outperformance in detail.

Impressive Q1 Results & Q2 Prospect

Dycom reported strong results for first-quarter fiscal 2025 (ended Apr 27, 2024). Contract revenues surpassed the consensus mark by 4.8% and grew 9.3% year over year (up 2.5% on an organic basis). Acquisitions contributed $71.2 million to contract revenues.

EPS also beat the consensus mark by 52.5% and increased 22.5% year over year. Adjusted EBITDA increased 15.3%, and adjusted EBITDA margin expanded 60 basis points (bps) from the year-ago level.

For the fiscal second quarter (ending on Jul 27, 2024), DY expects contract revenues to grow by high-single digits year over year. It expects $70 million of acquired contract revenues for the quarter. The adjusted EBITDA margin is expected to increase 25-75 bps from the year-ago levels.

Solid Backlog Level Reflects Future Growth

Dycom’s backlog at the fiscal first-quarter end totaled $6.364 billion compared with $6.316 billion at the end of the year-ago quarter. Of the backlog, $3.863 billion is projected to be completed in the next 12 months. Backlog activity during the fiscal first quarter reflected solid demand as it booked new work and renewed existing work.

The company continues to book new contracts and renew existing ones. Dycom has secured new contracts from Frontier, Comcast, and various rural fiber construction companies in the fiscal first quarter, which will boost the company’s growth momentum. The company remains positive about substantial opportunities across a broad array despite prevailing market uncertainties.

Solid 5G Technologies Deployments

Dycom’s business primarily benefits from increased demand for network bandwidth and mobile broadband, given the proliferation of smartphones. The announcement of the U.S. administration’s massive infrastructure plan to build modern, sustainable infrastructure and a clean future will have major implications for the U.S. economy and the construction industry over the next five years.

The ramp-up of projects related to 5G has been a silver lining for industry players like Dycom. The increased demand from telecom customers for wireline networks, wireless/wireline converged networks and wireless networks using 5G technologies has been benefiting DY. Construction work for communications is expected to pick up on huge investments in network expansion.

In first-quarter fiscal 2025, the company witnessed demand growth from two of its top five customers, courtesy of deploying gigabit wireline networks, wireless/wireline converged networks and wireless networks. The company expects deployments to accelerate in fiscal 2025 for several customers, including two significant ones whose capital expenditures were more heavily weighted toward the first half of calendar year 2023.

Other Key Picks

Some other top-ranked stocks from the same space are:

EMCOR Group, Inc. EME presently flaunts a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 32%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The consensus estimate for EME’s 2024 EPS indicates an improvement of 20.7% from the prior-year levels. The estimated figure moved up to $16.10 from $14.50 over the past 60 days.

Granite Construction, Inc. GVA, a Zacks Rank #1 company, is the largest diversified infrastructure firm in the United States. It has a trailing four-quarter earnings surprise of 24.7%, on average.

The consensus estimate for GVA’s 2024 EPS is expected to climb 51.6% year over year. The estimated figure moved up to $4.76 from $4.29 over the past 60 days.

Great Lakes Dredge & Dock Corp. GLDD is the largest provider of dredging services in the United States. Presently, the company sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 184.3%, on average.

The consensus estimate for GLDD’s 2024 EPS is expected to surge 421.4% year over year. The estimated figure moved up to 73 cents from 58 cents over the past 30 days.

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