Bull of the Day: Dycom Industries (DY)

Dycom Industries (DY - Analyst Report) is a specialty engineering and construction firm that calls AT&T (T - Analyst Report) one of its largest customers. The telecom giant's recently announced (early December) expansion of its GigaPower buildout to 38 additional metro areas bodes well for Dycom in 2016.

Speaking of giants, asset manager BlackRock thought highly enough of this news to immediately add 350k shares of DY to their existing 3.4 million haul, according to an SEC 13G filed on Dec 10. If you like the idea of investing in DY shares 30% lower than where BlackRock appears to have added between $85 and $90, then read on to discover the earnings power of Dycom.

My colleague Brian Hamilton wrote about Dycom as Bull of the Day on December 9 and had this to say...

Dycom continues to be at the forefront of the fiber-based broadband revolution, and has significantly beaten the Zacks Consensus Earnings estimate for 7 consecutive quarters. These big beats are driven by their top 5 customers, who are the leading fiber optic service companies in America. These major companies like Comcast, and AT&T have increased their fiber to home, and fiber to small business services, which have also accelerated their deployment of fiber-based broadband. Most importantly, these companies have indicated that they are going to lay more fiber in 2016, and 2017.

One Picture Says It All

In fact, the past four quarters achieved an average EPS beat of 66%. The good business news and strong outlook from Dycom compelled analysts to raise estimates more than once since the company's Q1 FY2016 report on November 23, taking the current fiscal year (ending July) from $3.27 to $3.92, representing 62.6% EPS growth.

And next year's projections rose from $3.78 to $4.52 for 15% annual growth. Here's the picture of rising EPS estimates leading the advance in Dycom shares in 2015 and suggesting this pullback may be one to buy...

This is the Zacks proprietary Price & Consensus chart which plots changes in annual estimates against the stock price. Clearly Dycom has hit its stride with telecom carrier buildout plans. From Brian Hamilton again...

Dycom saw year over year double digit organic growth from their top 5 customers for Q1 16: AT&T improved 15.4%, Comcast (CMCSA - Analyst Report) rose 21.8%, Centurylink was up 16.5%, Verizon (VZ - Analyst Report) was up 71.2%, and their unnamed customer -- which everyone believes is Alphabet (GOOGL - Analyst Report) -- improved 120.9%. Further, these top 5 customers have all indicated that they will continue to lay more fiber broadband in 2016. This is shown by Dycom’s total backlog increasing 68%, and new orders going up 76%.

Analysts Taking This Call

Stifel Nicolaus analysts recently resumed coverage of Dycom calling it one of their top industrial sector ideas and stating a price target of $100.

Wells Fargo analysts have an Outperform rating on shares with a valuation range of $100 to $105. They believe that Dycom is well positioned to benefit as telecom carriers maintain robust capital investment in their networks to keep pace with bandwidth demand and that the company faces limited competition.

Trading at only 16X current year estimates with strong contract growth from the heavy hitters of the 1-gigabit buildout, Dycom is an attractive industrial play immune to the global worries, currency risks, and oil & gas exposure facing so many other engineering & construction companies.

by Kevin Cook

Disclosure: I own DY shares for the Zacks FTM Trader portfolio.

Source:http://www.zacks.com/commentary/69281/bull-of-the-day-dycom-industries-dy