DY - Tough Market

DY issued their press release after the market close and will have their conference call tomorrow morning. The stock is down 16% as I write this.

Near as I can tell, the stock is down because they missed the mid-point of their guidance by 2 cents. Earnings for the quarter only doubled compared to the same quarter last year. TTM earnings more than doubled.

So guidance must have been poor right? Wrong. They are guiding for 28% earnings growth at the mid-point for next quarter on revenue growth of 20%. Those aren’t shabby numbers for a PE of 15.1 at the current stock price of $50.22 in the after hours.

I’ve never nibbled at this stock, but am considering the opportunity now more.



Yep, that hurt but seems like an overraction considering how far it has already fallen. Might nibble some more, probably a dip on the open.

Some think Dycom’s main business if very cyclical.

Over the years, we have found some of our best short opportunities in mundane, lower quality companies that have experienced a dramatic surge in their stock price following an unsustainable increase in earnings. During the quarter, we initiated a short position in Dycom Industries, a company that digs ditches for fiber installation, following a rise in its stock price of more than 125% on the year. Dycom, whose stock trades at around $65 per share, never earned more than $1.20 per share from 2002 to 2014. However, the company suddenly became an investor favorite in 2015 as earnings doubled (with solid gains also expected in 2016) due to strong demand from telecom networks (particularly AT&T) upgrading their copper networks to fiber.
We are generally skeptical of how many homes will actually be upgraded to fiber given questionable unit economics. While bulls are excited about a government program called Connect America that is aimed…


No position in DY