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Here's How Improving Economic Trends Will Aid Dycom (DY)

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Dycom Industries, Inc.'s (DY - Free Report) business has been reaping benefits from rising demand within the telecommunication business, strong backlog and consistent contract flows owing to stable demand for its services. Also, the recent $1-trillion infrastructure bill — proposed by the Trump administration to revive the world’s largest economy — is encouraging.

Shares of this specialty contracting firm have rallied more than 170.7% in the past three months compared with the Zacks Building Products - Heavy Construction industry’s 48.8% growth. In addition to the above-mentioned tailwinds, the solid price performance was backed by a strong financial position and diligent operational execution.

Here are a few factors that are driving this Zacks Rank #2 (Buy) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Strong Telecommunication Business: Dycom’s overall performance is highly dependent on the solid telecomm business. The segment, which accounts for more than 89% of total contract revenues, has been witnessing solid demand for network bandwidth and mobile broadband. Presently, a number of major industry participants are deploying significant wireline networks that are designed to provision bandwidth enabling 1-gigabit speeds, thereby creating significant opportunities for Dycom. Notably, two of its top five customers witnessed increased demand during the fiscal first quarter.

However, it is facing higher-than-expected costs of a large customer program and a slow start with a specific customer in rolling out its new system. Also, the recent market trend is a concern for the industry. Nonetheless, overall demand — which depends upon customers’ needs — within telecom services will soon gain momentum as it is deemed to be crucial for the country.

Trump’s $1-Trillion infrastructure Bill Raises Hope: The U.S. president Donald Trump is on track with his long-standing agenda of spending almost $1 trillion on infrastructure, including roads, bridges, highways and railways, along with 5G wireless infrastructure and rural broadband. Earlier in January, the House Democrat leaders proposed a $760-billion plan to renew infrastructure spending.

Trump is in favor of cashing in on the low interest rate environment that allows the U.S. government to borrow at a minimal rate. Notably, the proposed bill will be beneficial for Dycom and other industry players like EMCOR Group, Inc. (EME - Free Report) , Great Lakes Dredge & Dock Corporation (GLDD - Free Report) , as well as MasTec, Inc. (MTZ - Free Report) .

Solid Contract Flow: Dycom continues to experience strong 12-month backlog. The company recorded a backlog of $6.442 billion at fiscal first quarter-end. Of this backlog, 39% is expected to be completed over the next 12 months.

Increased demand for its services has boosted investors’ sentiments in recent times, despite a challenging environment stemming from coronavirus woes.

Strong Financial Position: The company has undertaken several strategic initiatives to expand market share on the back of a strong financial position and diligent operational execution. Its strong liquidity positions it well to undertake strategic initiatives like investments and acquisitions.

Dycom ended the fiscal first quarter with ample liquidity, including $643.9 million of cash and cash equivalents, as well as $390.1 million availability under the credit facility.

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