Selloff In Dycom Creates Opportunity

Although Dycom Industries, Inc. (NYSE: DY) reported impressive quarterly results, shares lost more than 15 percent due to investor concerns around a potential slowdown in the telecom infrastructure market and risk of a cyclical peak, D.A. Davidson’s John B. Rogers said in a report.

Mentioning that the price decline had created a “compelling valuation opportunity,” Rogers maintains a Buy rating on the company with a price target of $105.

Concern Over Potential Slowdown

While Dycom’s results reflected another quarter of significant growth, the company’s lower backlog and guidance of a slowdown in revenue growth in the April quarter raised concerns, Rogers stated.

Total backlog declined sequentially to $5.2 billion. Moreover, the company indicated a potential slowdown in revenue growth over the next couple of quarters from 21 percent to mid- to high-single-digits in the third quarter.

Growth Potential

Dycom is unlikely to continue generating organic growth above the 20 percent mark. The analyst said, however, that the company could generate double-digit growth “over the next several years.”

Dycom is facing challenging comps in FYQ3, given its “exceptional growth in FY16 and locations of work planned for FY17 (i.e., greater seasonal pressure in northern regions),” Rogers pointed out, adding that growth trends could improve slightly in the fourth quarter.

Given the recent share price pressure and expectations of a year-end rebound in growth, albeit modest, Dycom’s shares are attractive at present.