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Is Investing in Dycom Industries Stock a Prudent Choice Now?

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Dycom Industries, Inc. (DY - Free Report) has managed to impress investors with its recent winstreak, as earnings have trumped estimates in the four trailing quarters. The company expects to continue earnings momentum driven by surging demand for 1 Gigabyte deployments, huge investment in wireline networks as well as cable capacity projects.

The company’s performance has reflected well on share price, exhibiting investor optimism. The company’s shares have appreciated 21.8% in the last six months, outperforming the industry’s average growth of 11.8%. We believe that the industry is witnessing favorable broader trends, which should have a positive impact on Dycom, in the quarters to come. Read on to find out the key drivers.

Factors at Play

We believe favorable industry trends like surging demand for 1-Gigabyte deployment, huge investment in wireline networks and cable capacity bodes well for Dycom. The industry is witnessing a dramatically increasing network bandwidth with major industry participants deploying significant 1 gigabit wireline networks. Further, emerging wireless technologies necessitate incremental wireline deployments. In the past few quarters, the company has gained profitable market share, extend geographic reach, and expanded program management network planning services, which have added to growth.

The company expects engineering and construction activity to increase throughout the 2018. Several large programs gained momentum, and many new contracts commenced meaningful activity, consequently aiding growth. Moreover, emerging wireless technologies are fueling wireline investments growth and Dycom remains bullish that a complimentary wireline investment cycle is round the corner. The company also remains optimistic about fiber deep cable capacity projects and initial phases of fiber deployments for newly emerging wireless technologies.

Moreover, the company has a strong portfolio of customers, primarily the telecom and wireless equipment. We expect the company to benefit from its collaboration with renowned telecom operators. The company’s strong financial position, along with diligent operational execution, allows it to undertake strategic initiatives for expanding market share. This apart, the company acquired telecommunications and construction services provider, Texstar Enterprises, during the fiscal third quarter. The company anticipates its acquisitions strategy to help to expand geographic presence.

Despite these positives, the company anticipates gross margins will be pressured in the upcoming quarter due to expected adverse mix of work activity. Also, initiations of large-scale network deployments, particularly those occurring during periods of customer M&A activity, remain vulnerable to timing uncertainty, thus adding to woes.

Moreover, the company’s business remains highly vulnerable to risks associated with the U.S. telecommunications industry. Presently, the space is facing intense pricing competition. Severe spectrum crunch, along with gradual smartphone and tablet adoption, is compelling wireless operators to seek other options for raising revenues.

Considering growth drivers and the risks that the company faces, we have a Zacks Rank #3 (Hold) on Dycom.

Stocks to Consider

Some better-ranked stocks from the same space include Thor Industries, Inc. (THO - Free Report) , Owens Corning Inc (OC - Free Report) and Rayonier Inc. (RYN - Free Report) . While Thor Industries sports a Zacks Rank #1 (Strong Buy), Owens Corning and Rayonier carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Thor Industries has surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 15.3%.

Owens Corning has surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 17.5%.

Rayonier has outpaced estimates thrice in the preceding four quarters, with an average earnings surprise of 96%.

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