Dycom Industries is the IBD Stock of the Day as it nears an entry point.
Dycom, an installer of fiber-optic wiring, is expected to get a boost as AT&T and other phone companies finally expand their fiber-optic broadband networks. In addition, new government subsidies will expand broadband networks in rural areas.
The company digs small trenches where fiber-optic wiring is buried, breaks up and repairs sidewalks if needed, and strings the fiber wiring aerially to homes and business via utility poles. Dycom also performs construction, engineering and maintenance services for electric and gas utilities and other customers.
Based in Palm Beach Gardens, Fla., Dycom competes with Mastec, Emcor Group and many small, local specialty contractors. But Dycom is a more specialized contractor than bigger Mastec.
Dycom Stock Entry Points
DY stock jumped 2.4% to close at 101.14 on the stock market today. Dycom stock has gained nearly 7% in 2022. Shares have consolidated, forging an entry point of 105.38. The stock trades about 4% below that entry point.
DY stock has met resistance around 102. If it climbs above 102, there could be an earlier entry point for aggressive investors.
In the first quarter, Dycom reported adjusted earnings of 65 cents a share, topping analyst estimates for 16 cents, helped by a tax benefit of 14 cents. Revenue rose 21% to $876.3 million, beating estimates of $779 million.
Telecom firms including AT&T, Frontier Communications and Lumen Technologies are suddenly ramping up fiber-to-the-home, or FTTH, broadband services to take on cable TV companies.
Dycom's Rural Broadband Opportunity
Dycom has told analysts that it expects 50 million U.S. homes will be connected with fiber broadband in the next five to 10 years. About half of that could come from wiring rural homes with fiber-optic wiring.
The Infrastructure and Jobs Act includes $65 billion in broadband funding to telecom companies. According to a Morgan Stanley report, Dycom has called the infrastructure act "a tremendous opportunity."
Amid rising labor and fuel costs, Dycom's earnings before interest, taxes, depreciation and amortization, or EBITDA, have been an issue for some analysts.
Wells Fargo analyst Eric Luebchow recently met with Dycom management.
"We were encouraged to hear from DY that it sees a pathway for EBITDA margins to return to more normalized levels, even if it may take several quarters to reprice contracts to current market rates," Luebchow said.
Dycom Stock Relative Strength Rating
He added: "We also believe the rural broadband opportunity remains a longer-term growth driver for its business that will become a tailwind in the next few years."
DY stock holds a Relative Strength Rating of 96 out of a best-possible 99, according to IBD Stock Checkup. The best stocks tend to have an RS rating of 80 or better.
Dycom stock owns an Accumulation/Distribution Rating of C-plus. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
Dycom stock holds an IBD Composite Rating of 86 out of a best possible 99.
IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
