Gigabyte Growth Opportunities

06/21/2016 7:00 am EST


Tom Bishop

Founder, BI Research

The explosion of video over the Internet (including mobile devices) is largely behind the need for expanded gigabyte capacity, explains small cap expert Tom Bishop, editor of BI Research.

Dycom (DY) installs infrastructure for telecom and cable companies, including wireless companies, whether it be stringing fiber optic cable down the street, burying cable in a trench, running it right into a building, erecting or outfitting a cell tower.

The industry needs more speed, more bandwidth, and telecoms are deploying networks throughout the US capable of at least 1 gigabyte speeds.

Nowhere is this more evident than in the firm's backlog, which rose $1.1 billion during fiscal Q2 to $5.1 billion, adding another $600 million in the April Q3 to $5.65 billion. The 12-month backlog now stands at $2.2 billion.

I was baffled that I thought these shares were a buy in the $70’s on strong business prospects, only to see them drop under $60.

But the stock has now vaulted into the mid-$80s higher in response to very strong fiscal Q3 results and Q4 guidance, all above expectations.

Fiscal Q3 adjusted EPS nearly doubled to $1.08 vs. $0.58 last year, miles ahead of the consensus of $0.74. The conference call was upbeat and the company sees the strong business prospects continuing.

Dycom has grown over the years in part by making dozens of acquisitions of smaller companies that do this type of work. It is also important to note that an impressive 28% of the 35% growth in fiscal Q3 was organic.

Dycom envisions revenues of $750-$780 million (versus $664 million in fiscal Q3, and adjusted EPS of $1.45 to $1.60.

This is about $0.15 higher than estimates. So all seems well here — and then some. Estimates for FY 2017 have moved up $0.60 to $5.15.

Meanwhile, the shares are top rated by both Value Line and Zacks and have moved up to #7 in the Investor's Business Daily-50 (which historically far outperforms the S&P 500). We continue to rate the shares a buy.

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By Tom Bishop, Editor of BI Research

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