Dycom Industries Inc.(DY) is set to report first-quarter fiscal 2015 results on Nov 24. Last quarter, the company posted a positive surprise of 2.3%. Let’s see how things are shaping up for this announcement.
Factors to Consider
This North America-based specialty contracting firm has been gaining from the growing demand for high-speed mobile Internet and 4G/LTE services. The company has also been benefiting from strategic acquisitions which provide access to new technologies and markets across geographies. However, Dycom is still vulnerable to negative impact from the ongoing changes in the telecom industry.
Though fourth-quarter adjusted earnings of 48 cents per share had managed to beat the Zacks Consensus Estimate by a penny, contract revenues fell short. Moreover, 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– Verizon Communications Inc. (VZ), CenturyLink, Inc. and Windstream Holdings, Inc.
Moreover, the company’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. The recent endorsement of net neutrality by President Obama can also prove to be a headwind for the company, if proposed regulations in the Internet Service Providers industry are accepted. This apart, the company’s margins are also prone to be impacted by unpredictable weather conditions.
Earnings Whispers?
Our proven model does not conclusively show that Dycom is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Negative Zacks ESP: ESP for Dycom is -2.04% as the Most Accurate estimate of 48 cents per share stands a penny lower than the Zacks Consensus Estimate of 49 cents per share.
Zacks Rank #3 (Hold): Dycom’s Zacks Rank #3, when combined with a negative ESP, makes surprise prediction difficult.
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Stocks worth considering in the retail sector with both a positive Earnings ESP and a favorable Zacks Rank include:
Zumiez Inc. (ZUMZ) with an Earnings ESP of +3.85% and a Zacks Rank #2 (Buy).
The Kroger Co. (KR) with an Earnings ESP of +3.28% and a Zacks Rank #2.
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