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Why Is Dycom Industries (DY) Up 15.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Dycom Industries (DY - Free Report) . Shares have added about 15.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Dycom Industries due for a pullback? 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’s (DY - Free Report) Q2 Earnings & Revenues Beat Estimates

Dycom Industries Inc. reported solid results in second-quarter fiscal 2020 (ended Jul 27, 2019). Not only its top and bottom lines topped analysts’ expectation, but also the metrics improved year over year.

During the quarter, the company reported adjusted earnings of $1.09 per share, surpassing the consensus estimate of 84 cents by 29.8%. Also, the said figure increased 3.8% on a year-over-year basis.

Revenue & Operating Highlights

Dycom’s quarterly contract revenues came in at $884.2 million, increasing 10.6% year over year. The reported figure also surpassed the consensus mark of $860.49 million by 2.8%. During the quarter, the company initiated a contract modification process that helped it generate higher revenues from a large customer program.

Organically, revenues grew 11.1% year over year (excluding storm restoration services of $3.8 million in the year-ago quarter). The upside was backed by deployment of 1-gigabit wireline networks, wireless/wireline converged networks and wireless networks. Notably, higher demand from four of its top five customers supported the growth.

The company’s top five customers contributed 78.6% to total contract revenues, increasing 12.7% organically. Dycom’s largest customer Verizon accounted for 23.2% of the total revenues. Verizon grew 39.1% y/y organically. AT&T, which contributed 20.7% to revenues, was up 13.5% organically; CenturyLink added 15.7% to total revenues and increased 29% organically; Comcast accounted for 15.1% of revenues; Windstream, representing 3.9% of the total revenues, climbed 20.7% organically. Revenues from all other customers grew 5.5% organically in the quarter.

Dycom’s backlog at the end of the reported quarter totaled $6.691 billion versus $7.051 billion at the end of fiscal first quarter. Approximately $2.639 billion of the backlog is projected to be completed in the next 12 months.

Gross margin during the quarter was 18.5%, which declined 112 basis points (bps) due to higher cost of a large customer program. Adjusted EBITDA margin also contracted 90 bps to 11.3% compared with 12.2% in the year-ago quarter.

Financials

As of Jul 27, 2019, Dycom had cash and cash equivalents of $12.6 million compared with $128.3 million on Jan 26, 2019. Long-term debt was $932.3 million at the end of the second quarter compared with $867.6 million at fiscal 2019-end.

Third-Quarter Fiscal 2020 Guidance

The company anticipates contract revenues in the range of $820-$870 million versus the Zacks Consensus Estimate of $885.69 million (considering the mid-point of the guided range). The said range indicates a decline from the year-ago figure of $848.24 million.

Adjusted earnings are anticipated within 60-80 cents per share. Considering the mid-point of this guidance, the estimated range is below the consensus mark of 88 cents per share for the quarter. Also, the said range suggests a fall from the prior-year reported figure of 98 cents per share. Dycom expects adjusted EBITDA margin to decrease from the year-ago period.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -17.64% due to these changes.

VGM Scores

At this time, Dycom Industries has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, 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 C. 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. It's no surprise Dycom Industries has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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