Top Picks 2016: Dycom
01/18/2016 7:00 am EST
My Top Pick for growth investors for 2016 installs infrastructure for telecom and cable companies, explains small-cap expert Tom Bishop, editor of BI Research.
Dycom (DY) also installs infrastructure for wireless companies, whether it be stringing fiber optic cable down the street, burying cable in a trench, running it right into a building, erecting and outfitting a cell tower, etc.
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 the 29% growth in fiscal Q1 was organic.
After earnings $1.17 in FY 7/14 and $2.41 last year Dycom is currently forecasted to earn $3.92 this year (FY 7/16) and $4.40 in next year.
So what is driving this growth in an economy growing overall at 2%? A major upgrade cycle is just starting to kick in.
In the company's own words, "This quarter was impacted by a broad increase in demand from each and every one of our top five customers as we deployed 1 gigabit wireline networks and grew core market share."
The company explains, "Today a number of major industry participants are deploying significant wireline networks across broad sections of the country. These industry developments are producing opportunities across a broad array of our existing customers, which in aggregate are without precedent for the industry, in our experience."
Finally, the company says, "It is clear that calendar 2015 has been the foundational year for a massive investment cycle in wireline networks." I could not have said it better myself.
Zacks and Value Line both rank Dycom a 1, their highest ratings. Further, it's recently been the top stock in the IBD-50, with a 97 composite rating, 99 for relative earnings strength, and 98 for relative strength. Our BI Research rank is also a buy.