This infrastructure company beat analysts’ estimates by $0.23 in the last quarter, and five analysts have increased their forecasts in the past 30 days. Our second recommendation is a sell for a lagging fund.
Buy: Dycom (DY)
From BI Research
Back in the late ‘90s when the tech bubble was starting to build on irrational Internet exuberance, I found myself on the outside looking in, watching Internet stocks go off like bottle rockets to insane heights. As a GARP disciple (Growth at a Reasonable Price) and a fan of buying stocks at reasonable PEGs (PE to Growth rate), I just could not stomach buying any of those high flyers with no earnings but huge stock prices.
Good thing as it turned out because all the paper profits in those stocks exploded when the tech bubble burst. Anyway, I did want to play, so I recommended Dycom (DY), which was stringing the wires and cables that would actually deliver the promise of the Internet. We made a bundle then, and now things are getting very exciting for Dycom once again.
Dycom installs infrastructure for telecom and cable companies, including wireless companies. Clearly the explosion of video over the Internet (including mobile devices) is largely behind the need for expanded gigabyte capacity.
While Dycom has grown over the years in part by making dozens of acquisitions of smaller companies that do this type of work, it is important to note that an impressive 22% of that 29% growth in fiscal Q1 was organic.
The company’s customers include the whales in the industry. In Q1 AT&T was the largest, followed by Century Link, Comcast, Verizon and a mystery customer widely believed to be Google, and as such they accounted for 65% of revenues in the Q. Revenues from the first three grew in the 15-22% range, but Verizon and Google grew 71% and 120% respectively, so things are really hopping out there.
In addition to 29% growth in revenue to $659 million in fiscal Q1, adjusted EPS more than doubled to $1.24 compared to $.59 last year. Revenue in the current quarter, which ends in January, naturally declines seasonally with winter weather, holidays and shorter daylight. The company is guiding to $530 - $550 million with EPS in the $.52 - $.60 range. Analysts are at $.57; 30 days ago they were at $.39. While each quarter is an independent trial, the earnings surprises posted by Dycom for the past four quarters were 170%, 53%, 17% and 23%.
For FY7/16, analysts are looking for $3.92, which is $.65 higher than it was just 30 days ago!
This represents 63% growth over last year’s $2.41. During fiscal Q1 the Company spent $70 million buying back 954,000 shares at an average price of $73.35 and completed its acquisition of TelCom Construction for $49 million.
It took 32 years for the Internet to generate a zettabyte of IP traffic annually. Cisco predicts it will handle two zettabytes annually by 2019. That’ll mean a doubling of capacity. (What’s a zettabyte? A lot!) Also there is a 6-year FCC initiative called Connect America Fund to bring Internet access to rural areas funded by the FCC with $1.68 billion per year that should get going early in 2016.
Value Line ranks Dycom 1, so does Zacks, it’s the top stock in the IBD-50 (with a 97 composite rating, 99 for relative earnings strength and 98 for relative strength) and the BI Rank is 11.7. Plus with the recent market sell-off, we can get in at a discount to recent highs. Buy.
Wall Street’s Best Investments Editor’s note: A zettabyte is approximately equal to a thousand exabytes or a billion terabytes. A terabyte is equal to 1,000 gigabytes. A gigabyte is equal to a billion bytes. So, as Tom says, that’s a lot of data!
Tom Bishop, BI Research, www.biresearch.com, December 16, 2015