Dycom Industries is the IBD Stock of the Day amid a strong relative strength line and improving earnings estimates as market volatility continues. Dycom stock has gained 26% in 2022 as telecom customers ramp up spending on fiber-optic networks.
The company is expected to get a boost as AT&T, Lumen Technologies, Frontier Communications, Brightspeed and smaller phone companies expand their fiber-optic broadband networks. In addition, new government subsidies will expand broadband networks in rural areas.
Dycom digs small trenches to bury fiber-optic wiring, breaks up and repairs sidewalks if needed, and strings the fiber wiring aerially to homes and businesses via utility poles. It also performs construction, engineering and maintenance services for electric and gas utilities and other customers.
Dycom stock analysts say the company expects 50 million U.S. homes will be connected with fiber broadband in the next five to 10 years. Further, about half of that could come from wiring rural homes with fiber-optic wiring.
"The one thing that's significantly different from this period compared to any other period is the amount of government capital that's being used not just to fund the builds, but to attract additional capital so that in combination, the builds can be much larger," Chief Executive Steven Nielsen said at a D.A. Davidson financial conference on Sept. 23.
In 2021, the Biden administration and Congress pushed through an expected $67 billion in federal broadband subsidies. The Infrastructure and Jobs Act includes $42.5 billion for distribution to states through the Broadband Equity, Access and Deployment program. Further, there's an additional $15 billion in the next phase of what is known as the Rural Digital Opportunity Fund.
Supply-Chain Issues
Meanwhile, telecom firms expect to increase their own capital spending in rural areas. Private equity firms have provided more funding. Still, Dycom has challenges, including labor costs.
"The one thing that's a little bit different here is we're managing through it, but we never had the kind of supply constraints around equipment that we (have) now," said Nielsen.
In the October quarter, Dycom stock analysts estimate profit will grow to $1.33 a share, up 40% from 95 cents a year earlier.
Wall Street sees Dycom earnings growing 50% to $5.44 per share for fiscal 2024, with revenue rising 10% to nearly $4 billion.
Electric utilities account for about 8% of sales. Wireless phone companies also contract work to Dycom for projects linking fiber-optic lines to cellphone towers.
High Relative Strength Rating For Dycom Stock
Based in Palm Beach Gardens, Fla., Dycom competes with Mastec, Emcor Group and many small, local specialty contractors.
DY stock holds a Relative Strength Rating of 97 out of a best-possible 99. The best stocks tend to have an RS Rating of 80 or better.
Dycom stock owns an Accumulation/Distribution Rating of B. 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 98 out of a best-possible 99, according to IBD Stock Checkup. 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.
Shares fell 3.3% to close at 117.13 on the stock market today as the Nasdaq again retreated. Dycom stock now trades just below a 120.55 entry point from a cup base. It traded in a buy zone earlier this week.
Dycom Stock: Improved Margins
Amid rising labor and fuel costs, the company's earnings before interest, taxes, depreciation and amortization, or EBITDA, have been an issue for some Dycom stock analysts.
In the July quarter, Dycom delivered improved margins, noted Wells Fargo analyst Eric Luebchow in a recent report.
"For the second straight quarter, Dycom delivered 100 basis points of year-over-year margin improvement, with (July quarter) margins of 10.8% coming in materially better than our 9.5% expectation," he said.
The company has told Dycom stock analysts that revenue growth could slow in the back half of 2022 due to some fiber-optic network projects pausing.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
