On May 30, 2014, we issued an updated research report on Dycom Industries, Inc. (DY). The company reported modest third-quarter fiscal 2014 results which were impacted by unfavorable weather conditions. Further, snowfall and an extremely cold harsh winter affected margins during the quarter. This resulted in reduced number of working days, thereby affecting productivity.
Dycom has delivered positive earnings surprises in two of the last four quarters, with an average positive beat of 6.57%. In the third quarter, earnings of 23 cents per share surpassed the Zacks Consensus Estimate by a penny or 4.55%. Quarterly earnings were also up 9.5% year over year. However, revenues in the quarter declined 2.5% year over year to $426.3 million. Revenues also fell short of the Zacks Consensus Estimate of $429 million.
The company’s business gets considerably disrupted by natural disasters and unfavorable weather conditions as a major share of its work involves outdoor operations. Further, the company’s business is cyclical in nature. Taking the aforementioned conditions into consideration and anticipating an adverse impact on revenues from its rural business, the company did not provide an encouraging outlook for the ensuing quarter as well as fiscal 2015.
Five large customers form the primary source of Dycom’s revenues. Thus, loss of business with any of them will significantly impact the company’s revenues and profits. In the reported quarter, these customers accounted for more than 59% of the total revenue.
However, Dycom’s business primarily benefits from long-term growth drivers such as increased demand for network bandwidth and mobile broadband on the higher proliferation of smartphones and other wireless data services. As telecommunications networks experience increased demand, customers need to enhance the capacity and performance of their existing networks and in certain instances, deploy new networks.
The rising demand for video offerings has compelled telephone operators to deploy fiber-to-the-home and fiber-to-the-node technologies. Further, the growing high-speed network demand requires telecom operators to upgrade their technology and resources to enable the networks with 1- gigabit bandwidth. Dycom has started providing engineering and design services along with aerial and underground construction for 1-gigabit trials conducted by the companies. These developments are likely to benefit the company significantly going forward.
Dycom currently has a Zacks Rank #3 (Hold). Some better-ranked companies in the sector include Emcor Group Inc. (EME), Sterling Construction Co. Inc. (STRL) and Tutor Perini Corporation (TPC). All three carry a Zacks Rank #2 (Buy).
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