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Dycom Stock Up 61% YTD: Lock in Gains or Hold for More Upside?
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Dycom Industries, Inc. (DY - Free Report) has had a stellar year, with its stock soaring 61% year to date (YTD). The company, a key player in providing contracting services for the telecommunications and utility sectors, has outperformed its peers like Quanta Services, Inc. (PWR - Free Report) , which has gained 21.9% YTD, MasTec, Inc. (MTZ - Free Report) , which has gained 42.1%, and Primoris Services Corporation (PRIM - Free Report) , which has surged 58%.
The company’s shares have also fared well compared with the Zacks Building Products - Heavy Construction industry’s 54.2% growth, the broader Construction sector's 13.9% increase and the Zacks S&P 500 Composite's 15% increase.
DY’s YTD Price Performance
Image Source: Zacks Investment Research
The company has been capitalizing on the secular demand for high-speed connectivity, AI-driven infrastructure expansion, and significant government funding.
Dycom's growth trajectory has been fueled by strong demand for telecommunications infrastructure. As major telecom companies ramp up their investments in 5G networks and fiber-optic deployment, Dycom has positioned itself as a critical partner in the build-out of these high-speed networks. This heightened demand for fiber-optic installations has been a significant driver of Dycom's financial success, as seen in its recent earnings reports.
Technical indicators are supportive of Dycom’s strong performance. As of Wednesday, the stock is trading at $184.94, comfortably above its 50-day moving average of $177.70. Additionally, the stock is trading near its 52-week high of $185.59, signaling continued momentum.
This significant outperformance has raised the question for investors: Is now the time to lock in gains or stay invested?
Factors Helping DY Stock to Surge
Telecommunications Infrastructure Expansion: The demand for high-speed broadband, driven by both consumer and business needs, is a major growth factor. Dycom’s services in fiber deployment for both wireline and wireless infrastructure are crucial to expanding connectivity across the United States.
Private investments continue to drive fiber-to-the-home deployments, with estimates that 75-80% of U.S. homes will eventually be connected by fiber. This trend is supported by joint ventures, mergers and acquisitions, and refinancings in the telecommunications industry, all of which are focused on expanding fiber networks.
As of 2023, 140 million homes were available for fiber installations. This number includes urban, suburban, and rural households. The growing appetite for gigabit speeds for both fixed and mobile access continues to fuel demand for Dycom's services.
Government Funding for Communications Infrastructure: More than $70 billion in funding is available through federal programs to support broadband infrastructure development. The Broadband Equity, Access, and Deployment (BEAD) program alone allocates $40 billion to fund broadband access for unserved and underserved areas across the country.
Approximately $22 billion of the BEAD program has received initial approval for deployment as of August 2024. Other programs include the Rural Digital Opportunity Fund, which provides $20 billion to expand fixed broadband in rural areas, and the American Rescue Plan Act and USDA ReConnect Program, which provide additional funding. These programs represent unprecedented levels of public capital to support telecommunications infrastructure, particularly in hard-to-reach rural markets where private capital might not be sufficient.
Wireless Network Upgrades and Spectrum Expansion: Increasing capital expenditures by wireless providers to implement network upgrades, specifically focusing on spectrum expansion and fixed wireless access (FWA), has been one of the major growth drivers for DY. Wireless providers, such as AT&T, are making large capital investments to upgrade their networks and expand spectrum availability for both mobile and fixed wireless services.
In 2024, AT&T planned to spend between $21 billion and $22 billion on wireless network modernization. Dycom's largest customer, AT&T, contributed 17.5% of revenues, or $210.2 million, in the second quarter of fiscal 2025. AT&T experienced an organic growth of 20.6%, marking its first quarter of organic growth since January 2023. This growth was due to the deployment of gigabit wireline networks and wireless infrastructure.
The second-largest customer of Dycom, Lumen, contributed 13.6% of revenues, or $163.7 million, with organic growth of 1% in the quarter. Comcast, Dycom’s third-largest customer, provided $105.6 million, or 8.8% of the revenues.
The company’s top five customers contributed 54.9% to total contract revenues in the fiscal second quarter, which inched up 7.1% organically. Revenues from all other customers increased 12.3% organically in the quarter. This period marked the 22nd consecutive period of organic growth for DY’s all other customers in aggregate, excluding the top five.
Artificial Intelligence (AI) Driving Demand: The demand for high-capacity, low-latency intercity fiber networks is driven by the growth of AI and data centers, which require reliable and fast network connectivity. Recent multi-billion-dollar partnerships, such as Lumen’s partnership with Microsoft and Corning for fiber supply, evidence the growing demand for fiber infrastructure to support AI applications.
Acquisition: The recent acquisition of Black & Veatch's public carrier wireless telecommunications infrastructure business is expected to significantly contribute to revenue and backlog growth. This marks Dycom’s largest-ever buyout in the wireless services space, strengthening its capabilities in wireless construction services (read more: Dycom Eyes $275M Revenue Boost With $150M Black & Veatch Deal).
DY’s Short-Term Hiccups
Tepid Q3 Organic Revenue Growth & Weather-Related Woes: The company projected a potential deceleration in organic revenue growth for the third quarter of fiscal 2025. While the fiscal second quarter saw 9.2% organic growth, expectations for the fiscal third quarter were for mid-to-high single-digit growth. This slowdown was partly due to tougher comparisons from the prior year, where there were significant change orders and project closeouts that boosted revenues.
The company mentioned that August had been a particularly wet month, which could impact operational efficiency and potentially slow down project execution in the fiscal third quarter.
Customer-Specific Slowdowns: Dycom hinted that one of its customers, which had a strong first half of fiscal 2025, might experience a slower second half. This slowdown could negatively impact overall revenue growth for the company in the upcoming quarter.
Also, the Wireless segment, which accounts for about 3% of Dycom’s total revenues, was down approximately 10-12% year over year in the fiscal second quarter. This decline was attributed to broader industry trends and a general slowdown in wireless network construction as the industry prepares for network modernization efforts.
Integration Costs and Challenges: The acquisition of Black & Veatch's public carrier wireless telecommunications infrastructure business, while strategically important, also comes with challenges. Dycom will incur $5.5 million in pre-tax integration costs related to this acquisition in the fiscal third quarter, which will affect its EBITDA margins in the short term. Additionally, there may be challenges in fully integrating the acquired business into Dycom’s existing operations and achieving the anticipated synergies.
BEAD Program Timing Uncertainty: While Dycom is optimistic about the BEAD program, there is some uncertainty regarding the exact timing of when these opportunities will translate into revenues. The company expects contributions from the BEAD program in the fiscal third quarter, but the actual timing and magnitude of these contributions remain uncertain, which could lead to potential delays in expected growth.
DY Stock’s Estimate Movement & Valuation
From the following chart, it is evident that DY stock is witnessing downward earnings per share (EPS) estimate revisions for fiscal 2025. The estimated figure depicts 8.1% growth for fiscal 2025 from the prior year’s reported levels.
Image Source: Zacks Investment Research
DY stock is trading slightly at a premium compared with the industry and slightly higher than its median, reflecting a stretched valuation. For investors focused on fundamentals, this could be a point of caution.
Image Source: Zacks Investment Research
How to Play Dycom Stock?
The company is optimistic about its prospects in both wireline and wireless sectors, with strong financial positioning and strategic acquisitions setting the stage for continued growth. With the U.S. government’s push for expanded broadband access and 5G network build-outs continuing to gain momentum, Dycom is well-positioned to benefit from these trends going forward.
However, the deceleration in growth, integration challenges, short-term woes like in the wireless sector and BEAD program delays, potential impacts from weather and customer slowdowns are key areas to monitor. While Dycom has solid fundamentals and operates in a growth industry, the stock’s current valuation is higher than its historical averages, which could signal limited upside in the near term. This, along with the downward estimate revision, adds to the uncertainty.
Given the potential short-term weakness, Dycom might not represent a compelling buying opportunity at this time. On the other hand, long-term investors who believe in Dycom’s continued growth potential in the telecom infrastructure sector may find it worthwhile to hold onto their shares. For new investors, it might be prudent to wait for a more favorable entry point.
Image: Shutterstock
Dycom Stock Up 61% YTD: Lock in Gains or Hold for More Upside?
Dycom Industries, Inc. (DY - Free Report) has had a stellar year, with its stock soaring 61% year to date (YTD). The company, a key player in providing contracting services for the telecommunications and utility sectors, has outperformed its peers like Quanta Services, Inc. (PWR - Free Report) , which has gained 21.9% YTD, MasTec, Inc. (MTZ - Free Report) , which has gained 42.1%, and Primoris Services Corporation (PRIM - Free Report) , which has surged 58%.
The company’s shares have also fared well compared with the Zacks Building Products - Heavy Construction industry’s 54.2% growth, the broader Construction sector's 13.9% increase and the Zacks S&P 500 Composite's 15% increase.
DY’s YTD Price Performance
Image Source: Zacks Investment Research
The company has been capitalizing on the secular demand for high-speed connectivity, AI-driven infrastructure expansion, and significant government funding.
Dycom's growth trajectory has been fueled by strong demand for telecommunications infrastructure. As major telecom companies ramp up their investments in 5G networks and fiber-optic deployment, Dycom has positioned itself as a critical partner in the build-out of these high-speed networks. This heightened demand for fiber-optic installations has been a significant driver of Dycom's financial success, as seen in its recent earnings reports.
Technical indicators are supportive of Dycom’s strong performance. As of Wednesday, the stock is trading at $184.94, comfortably above its 50-day moving average of $177.70. Additionally, the stock is trading near its 52-week high of $185.59, signaling continued momentum.
This significant outperformance has raised the question for investors: Is now the time to lock in gains or stay invested?
Factors Helping DY Stock to Surge
Telecommunications Infrastructure Expansion: The demand for high-speed broadband, driven by both consumer and business needs, is a major growth factor. Dycom’s services in fiber deployment for both wireline and wireless infrastructure are crucial to expanding connectivity across the United States.
Private investments continue to drive fiber-to-the-home deployments, with estimates that 75-80% of U.S. homes will eventually be connected by fiber. This trend is supported by joint ventures, mergers and acquisitions, and refinancings in the telecommunications industry, all of which are focused on expanding fiber networks.
As of 2023, 140 million homes were available for fiber installations. This number includes urban, suburban, and rural households. The growing appetite for gigabit speeds for both fixed and mobile access continues to fuel demand for Dycom's services.
Government Funding for Communications Infrastructure: More than $70 billion in funding is available through federal programs to support broadband infrastructure development. The Broadband Equity, Access, and Deployment (BEAD) program alone allocates $40 billion to fund broadband access for unserved and underserved areas across the country.
Approximately $22 billion of the BEAD program has received initial approval for deployment as of August 2024. Other programs include the Rural Digital Opportunity Fund, which provides $20 billion to expand fixed broadband in rural areas, and the American Rescue Plan Act and USDA ReConnect Program, which provide additional funding. These programs represent unprecedented levels of public capital to support telecommunications infrastructure, particularly in hard-to-reach rural markets where private capital might not be sufficient.
Wireless Network Upgrades and Spectrum Expansion: Increasing capital expenditures by wireless providers to implement network upgrades, specifically focusing on spectrum expansion and fixed wireless access (FWA), has been one of the major growth drivers for DY. Wireless providers, such as AT&T, are making large capital investments to upgrade their networks and expand spectrum availability for both mobile and fixed wireless services.
In 2024, AT&T planned to spend between $21 billion and $22 billion on wireless network modernization. Dycom's largest customer, AT&T, contributed 17.5% of revenues, or $210.2 million, in the second quarter of fiscal 2025. AT&T experienced an organic growth of 20.6%, marking its first quarter of organic growth since January 2023. This growth was due to the deployment of gigabit wireline networks and wireless infrastructure.
The second-largest customer of Dycom, Lumen, contributed 13.6% of revenues, or $163.7 million, with organic growth of 1% in the quarter. Comcast, Dycom’s third-largest customer, provided $105.6 million, or 8.8% of the revenues.
The company’s top five customers contributed 54.9% to total contract revenues in the fiscal second quarter, which inched up 7.1% organically. Revenues from all other customers increased 12.3% organically in the quarter. This period marked the 22nd consecutive period of organic growth for DY’s all other customers in aggregate, excluding the top five.
Artificial Intelligence (AI) Driving Demand: The demand for high-capacity, low-latency intercity fiber networks is driven by the growth of AI and data centers, which require reliable and fast network connectivity. Recent multi-billion-dollar partnerships, such as Lumen’s partnership with Microsoft and Corning for fiber supply, evidence the growing demand for fiber infrastructure to support AI applications.
Acquisition: The recent acquisition of Black & Veatch's public carrier wireless telecommunications infrastructure business is expected to significantly contribute to revenue and backlog growth. This marks Dycom’s largest-ever buyout in the wireless services space, strengthening its capabilities in wireless construction services (read more: Dycom Eyes $275M Revenue Boost With $150M Black & Veatch Deal).
DY’s Short-Term Hiccups
Tepid Q3 Organic Revenue Growth & Weather-Related Woes: The company projected a potential deceleration in organic revenue growth for the third quarter of fiscal 2025. While the fiscal second quarter saw 9.2% organic growth, expectations for the fiscal third quarter were for mid-to-high single-digit growth. This slowdown was partly due to tougher comparisons from the prior year, where there were significant change orders and project closeouts that boosted revenues.
The company mentioned that August had been a particularly wet month, which could impact operational efficiency and potentially slow down project execution in the fiscal third quarter.
Customer-Specific Slowdowns: Dycom hinted that one of its customers, which had a strong first half of fiscal 2025, might experience a slower second half. This slowdown could negatively impact overall revenue growth for the company in the upcoming quarter.
Also, the Wireless segment, which accounts for about 3% of Dycom’s total revenues, was down approximately 10-12% year over year in the fiscal second quarter. This decline was attributed to broader industry trends and a general slowdown in wireless network construction as the industry prepares for network modernization efforts.
Integration Costs and Challenges: The acquisition of Black & Veatch's public carrier wireless telecommunications infrastructure business, while strategically important, also comes with challenges. Dycom will incur $5.5 million in pre-tax integration costs related to this acquisition in the fiscal third quarter, which will affect its EBITDA margins in the short term. Additionally, there may be challenges in fully integrating the acquired business into Dycom’s existing operations and achieving the anticipated synergies.
BEAD Program Timing Uncertainty: While Dycom is optimistic about the BEAD program, there is some uncertainty regarding the exact timing of when these opportunities will translate into revenues. The company expects contributions from the BEAD program in the fiscal third quarter, but the actual timing and magnitude of these contributions remain uncertain, which could lead to potential delays in expected growth.
DY Stock’s Estimate Movement & Valuation
From the following chart, it is evident that DY stock is witnessing downward earnings per share (EPS) estimate revisions for fiscal 2025. The estimated figure depicts 8.1% growth for fiscal 2025 from the prior year’s reported levels.
Image Source: Zacks Investment Research
DY stock is trading slightly at a premium compared with the industry and slightly higher than its median, reflecting a stretched valuation. For investors focused on fundamentals, this could be a point of caution.
Image Source: Zacks Investment Research
How to Play Dycom Stock?
The company is optimistic about its prospects in both wireline and wireless sectors, with strong financial positioning and strategic acquisitions setting the stage for continued growth. With the U.S. government’s push for expanded broadband access and 5G network build-outs continuing to gain momentum, Dycom is well-positioned to benefit from these trends going forward.
However, the deceleration in growth, integration challenges, short-term woes like in the wireless sector and BEAD program delays, potential impacts from weather and customer slowdowns are key areas to monitor. While Dycom has solid fundamentals and operates in a growth industry, the stock’s current valuation is higher than its historical averages, which could signal limited upside in the near term. This, along with the downward estimate revision, adds to the uncertainty.
Given the potential short-term weakness, Dycom might not represent a compelling buying opportunity at this time. On the other hand, long-term investors who believe in Dycom’s continued growth potential in the telecom infrastructure sector may find it worthwhile to hold onto their shares. For new investors, it might be prudent to wait for a more favorable entry point.
DY currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.