Monday, February 15, 2016

35th AIM Equity Update by Eric Christopherson. Dycom Industries (DY) "Off 30% since December - Is this a good entry point?"

Dycom Industries (DY, $50.47): “Dycom: Dynamite or Bust? 

By: Eric Christopherson, AIM student at Marquette University

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Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.



Dycom Industries, Inc. (NYSE:DY) provides specialty contracting services to the telecommunications and infrastructure industry throughout the United States and Canada.

• Analysts will be awaiting Dycom’s reports of earnings on February 23.

• Dycom has witnessed a fairly large increase of shares in its short figure as of recently with company insiders showing a change of heart as well.

•Even with the problems with the stock price, Dycom is looking at a revenue funnel in the form of the expansions of AT&T and Centurylink’s service plans. 

• While still up in the air, Dycom’s stock could see a significant rise come the end of the second quarter of 2016.

Key points:  Dycom Industries stock has been taking a beating as of recently with shares down 30% since December 1, 2015 compared to a 9% downturn in the S&P 500.  This decline could reflect fears of investors in a slowdown in the US economy along with a reduction in consumer spending of which could adversely impact the business.  As a result, look to February 23, 2016 for analysts to be watching closely as the next quarters earnings are reported.


With the stock seeing dramatic downturns recently after being so strong for so many years, Dycom Industries has seen a 5.6% rise of shares in its short figure.  This short interest rise took it from 3,609,628 shares on December 31, 2015 to 3,813,129 on January 15, 2016.  With this in mind, company insiders have been selling off their positions in spades with 65,671 shares being sold in the last six months by insiders with Nielsen Steven, CEO of Dycom, selling of 12,053 shares back in December.


In other news, AT&T and Centurylink are moving forward with their 1 Gbps FTTH service plans which should positively impact Dycom going forward.  The core fiber spending of these two companies is not slowing down with AT&T committed to expanding their GigaPower to 14MM locations by mid-2019.  For Dycom, this is great news, as Dycom has existing contracts with AT&T in 10 of the 20 recently announced states where these expansions will take place. 


Dycom is expected to report their earnings on February 23 amid the turmoil of Dycom’s stock price.  Steven Nielsen announced in the first-quarter 2016 earnings call that the company would be poised to win numerous construction services contracts once CAF-II projects get underway in the second quarter of 2016. When this is combined with the fact that the company has shown weakness in its stock price as of recently and the fact that these CAF-II revenues will mix with the aforementioned projects with AT&T and Centurylink, Dycom Industries could see a bump in their stock price for the better going forward, rewarding investors who have not sold out.  That is if earnings stay on pace by the time of the next quarter’s report.


What has the stock done lately?


As of the writing of this blog, Dycom Industries Inc. dropped 9.6% yesterday, February 8 with the stock slipping by $5.31 per share.  The losses have sent Dycom down to a market cap of $1.62 billion.  Overall, the stock is downtrending as Dycom has declined 12.76% since July 2, 2015 with the stock underperforming the S&P 500 by 4.96%.  As a result, Wall Street has no forecast a -54.03% EPS growth. 


Past Year Performance:  Dycom has been performing fairly well over the past year.  FYE 2015, revenues increased to over $2 billion compared to $1.812 billion in 2014.  This increase in revenues was attributed to services for customers deploying 1-gigabit networks and from new awards from customers.  Revenues of $40.4 million were generated by businesses acquired in 2015 and in the fourth quarter of 2014.  These acquisitions included Hewitt Power and Communications, Moll’s Utility Services and Venture Communications Group.  Overall, it was another solid year for the engineering and construction company.



Source: FactSet


My Takeaway

While the large increase in the amount of shares in its short figure is intriguing, the next earnings call will definitely see a large impact on the stock price of Dycom.  While the stock has been falling over the past quarter, there have been nothing but positives coming Dycom’s way.  The core fiber spending of AT&T and Centurylink as well as the construction services contracts that Dycom is poised to win should help drive revenues for the second quarter of 2016.  With many people selling off shares of Dycom as the stock weakens, those who have not sold out may cash out in the end if Dycom is able to post above average earnings in their report due out in a couple weeks.

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