Dycom Industries (DY, $50.47): “Dycom: Dynamite or
Bust?”
By: Eric Christopherson, AIM student at Marquette University
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.
Summary
• 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.
