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Can Dycom Scale Higher on Wireline Investment Drive?


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Specialty contracting services provider, Dycom Industries Inc. (DY - Analyst Report) has been experiencing a solid run on the bourse. The company’s growth has been primarily fuelled by rising demand for network bandwidth and mobile broadband. It has also emerged as one of the biggest surprise winners last year and has more room to run, which raise our optimism on the stock.

Let us discuss some of the strong growth drivers which are unlikely to fizzle out any time soon.

Robust Catalysts

Most of the telecommunication companies are deploying fiber-to-the-home and fiber-to-the-node technologies to enable video offerings and 1-gigabit high-speed connections. This provides significant opportunities for Dycom. The company’s engineering & design and aerial and underground construction services have been experiencing solid growth, backed by the strength of 1 gigabit deployments. Over the past few quarters, extensive deployment of 1-Gigabyte wireline networks by major customers has been a major profit churner for the company.

Dycom is bullish as one of its major customers has plans to deploy speeds to 10 gigabits. This, in turn, represents a huge array of lucrative opportunities for existing customers. Additionally, cable capital expenditure has been rising rapidly ascable operators continue to deploy fiber in small and medium businesses. The company believes that unprecedented favorable industry trends, impressive investment in wireline networks, cable capacity projects and ongoing Connect America Fund II project will significantly drive growth in market share.

Moreover, Dycom has a promising clientele that can provide it a competitive edge over its peers. The company serves telecom and wireless equipment biggies – such as AT&T, Inc. (T - Analyst Report) , Comcast, CenturyLink, Inc. (CTL - Analyst Report) and Verizon Communications Inc. (VZ - Analyst Report) – who are constantly taking up major capital-spending initiatives. Dycom believes that it is experiencing a second wave of wireline networks investments since the first one in 90’s, thus adding to the company’s prospects. Also, the company registered healthy backlog level of $6.031 billion at the end of the fourth quarter, out of which approximately $2.323 billion is expected to be completed within the next 12 months.

This apart, the company’s diligent acquisitions, which has fortified its geographic footprint, has significantly supplemented its top-line growth. During fourth-quarter fiscal 2016, acquisitions contributed $44.8 million of revenue. In this regard, we believe that the recent investments in Goodman Networks and NextGen Telecom look promising.

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