Zacks Investment Research downgraded Dycom Industries Inc. (DY), a North America-based specialty contracting firm operating in the telecom industry,to a Zacks Rank #5 (Strong Sell) on Oct 14.
Why the Downgrade?
Dycom has been witnessing downward estimate revisions following soft fourth-quarter fiscal2014 results. Though quarterly adjusted earnings of 48 cents per share managed to beat the Zacks Consensus Estimate by a penny, contract revenues fell short. Worryingly, in the preceding quarter, revenues sourced from the company’s top five customers declined 2% on an organic basis, owing to significant reduction in business from its three key customers – CenturyLink, Inc. (CTL), Verizon Communications Inc. (VZ) and Windstream Holdings, Inc. (WIN).
Moreover, thecompany’s business is highly dependent on the level of capital expenditures. Ongoing changes in the telecommunications industry are further adding to the uncertainty in capital expenditure levels. Also, volatility in sales faced by the operators can also lead to reduction in capital spending levels which can prove to be a headwind for the company. This apart, the company’s margins are prone to be impacted by unpredictable weather conditions.
All these triggered a downtrend in the Zacks Consensus Estimate. The downward estimate, over the last 60 days, led to a decline of 10.8% to $1.49 per share in the Zacks Consensus Estimate for fiscal 2015. For fiscal 2016, the Zacks Consensus Estimate dipped 10.2% to $1.94 per share over the same time frame.
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