Dycom (DY) Rises 104% in 6 Months: Will the Rally Continue?

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Dycom Industries Inc. DY has been riding high on strong prospects in the telecommunication business, continuous contract wins and solid backlog. Earnings estimates for fiscal 2021 and 2022 have moved 6.4% and 0.9% north in the past 30 days, depicting bullish analysts’ sentiments.

Shares of this specialty contracting firm have rallied 104.1% over the past six months, outperforming the Zacks Building Products – Heavy Construction industry’s 26.9% growth.

This Zacks Rank #1 (Strong Buy) stock has also outperformed the Zacks Construction sector and S&P 500 Index’s 47.7% and 22.9% rally, respectively, in the said time frame. You can see the complete list of today’s Zacks #1 Rank stocks here.


Factors Narrating Dycom’s Growth Story

Strong Prospects in Telecommunication Business: Accounting for 90.8% of contract revenues, Dycom’s Telecommunication business primarily benefits from increased demand for network bandwidth and mobile broadband, given the proliferation of smart phones. As telecommunication networks face increased demand, customers need to expand the capacity and improve the performance of existing networks and in certain instances, deploy new networks. Presently, a number of major industry participants are deploying significant wireline networks to offer bandwidth-enabling 1-gigabit speeds, thereby creating significant opportunities for Dycom.

In the last few quarters, the company’s top line benefited immensely from extensive deployment of 1-gigabit wireline networks by major customers. Dycom remains optimistic about the strengthening industry environment, given strong end-market drivers. Although the recent market trend is a concern, telecommunication networks that are a crucial infrastructure for the country will gain momentum as the effects of the pandemic phase out.

Solid Backlog: Dycom continues to register a stable 12-month backlog despite a challenging economic backdrop. This indicates persistent growth through the next calendar year. The company recorded backlog of $6.441 billion at the end of second-quarter fiscal 2021, almost in line sequentially. Of this backlog, 38.1% is expected to be completed over the next 12 months. Going forward, its string of contract wins and strong customer relationships will act as growth drivers. The company remains positive about a broad array of substantial opportunities, despite prevailing market uncertainties.

Solid Engineering & Construction Prospects: Dycom expects engineering and construction work to gain strong momentum in the coming quarters, given solid market prospects. Several large programs have gained momentum in recent times, and many new contracts have commenced meaningful activity, thereby propelling the company’s growth. Although it expects the upcoming results to be impacted by uncertain economic conditions and challenges surrounding a large customer program, the business — whose most of the work is deemed essential for the economy — is likely to gain momentum as the effects of the pandemic phase out.

Healthy Growth Projections: The Zacks Consensus Estimate for Dycom’s earnings per share for the current year is pegged at $2.82, indicating year-over-year growth of 24.2%.

Other Stocks to Consider

Owens Corning Inc. OC delivered an earnings surprise of 63.8% in the last four quarters. The stock currently has a Zacks Rank #1.

AECOM’s ACM fiscal 2021 earnings are expected to grow 16.6%. The stock currently has a Zacks Rank #2 (Buy).

Howmet Aerospace Inc. HWM delivered an earnings surprise of 190.7% in the last four quarters. The stock currently has a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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