Dycom Industries (DY) Down 4.5% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Dycom Industries (DY). Shares have lost about 4.5% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Dycom Industries due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Dycom Q1 Earnings Beat, Stock Up on Solid Organic Growth

Dycom Industries Inc. reported stellar results in first-quarter fiscal 2023 (ended Apr 30, 2022). Quarterly earnings and revenues surpassed the respective Zacks Consensus Estimate and increased on a year-over-year basis. The upside was mainly backed by solid organic growth and storm restoration services.

Major industry players have been constructing or upgrading significant wireline networks across broad sections of the country to provide gigabit network speeds to individual consumers and businesses either directly or wirelessly using 5G technologies, which is broadening the industry and Dycom’s opportunities. Moreover, high-capacity fiber networks are proving to be the most cost-effective technology, enabling multiple revenue streams from a single investment.

Yet, macroeconomic effects and supply constraints might influence the near-term execution of some customer plans.

Earnings & Revenue Discussion

Dycom reported adjusted earnings of 51 cents per share, surpassing the Zacks Consensus Estimate of 11 cents by 363.6% and increasing from the year-ago quarter’s figure of negative 4 cents.

Contract revenues of $876.3 million moved up 20.5% year over year and beat the consensus mark of $779 million by 12.4%. Contract revenues increased 21.1% on an organic basis (after adjusting for storm restoration services revenues). The same from storm restoration services amounted to $3.9 million in the quarter.

Its top five customers contributed 67.3% to total contract revenues, which rose 19.8% organically. Revenues from all other customers increased 23.9% organically in the quarter. The quarter marks the 13th consecutive quarter wherein DY’s all other customers in aggregate, excluding the top five customers, have grown organically.

Dycom’s largest customer AT&T (contributing 27.1% to total revenues) advanced 52.7% on an organic basis. This marked its fifth consecutive quarter of organic growth. Comcast (the second-largest customer) contributed 12.7% to total revenues, Lumen contributed 11.7% and Verizon and Frontier represented 9.2% and 6.5% of total revenues, respectively. Lumen and Frontier rose 20.3% and 127.1% organically, respectively.

Fiber construction revenues from electric utilities increased 47% year over year, organically, and contributed 7.9% to total contract revenues.

Dycom’s backlog at the end of the fiscal first quarter totaled $5.593 billion compared with $6.528 billion at the first-quarter fiscal 2022-end. Of the backlog, $2.959 billion is projected to be completed in the next 12 months.

Operating Highlights

The gross margin in the quarter was 14.9%, up 13 basis points (bps) from the year-ago quarter level. Improved operating performance was partially offset by higher fuel costs. G&A expense, as a percent of total revenues, rose 129 bps to 7.9%, backed by improved operating leverage at the higher level of revenues and tight cost management.

Adjusted EBITDA margin of 7.3% expanded 120 bps from the year-ago level.

Financials

As of Apr 30, 2022, Dycom had cash and cash equivalents worth $185.6 million compared with $310.8 million on Jan 29, 2022. Long-term debt was $819.3 million at the end of first-quarter fiscal 2023 compared with $823.3 million at fiscal 2022-end.

During the reported quarter, DY repurchased 200,000 shares for $18.5 million at an average price of $92.70 per share.

Fiscal Q2 FY23 View

For the fiscal second quarter (ended Jul 30, 2022), it expects contract revenues to grow in mid-teens to 20% year over year. The adjusted EBITDA margin is expected to be in-line or increase modestly from the year-ago levels. For the said period, it expects effective tax rate to be 27% and diluted shares of 30 million. Interest expense are likely to be $9.5 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Dycom Industries has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Dycom Industries has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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