Dycom

Investment Analysis Clubs Saul’s Investing Discussions
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I first came across Dycom in the New America column of the Sept 10, 2015 IBD. It is currently the number 1 stock in the IBD 50.

http://www.dycomind.com/
Company description from web-site:
Dycom Industries, Inc. is a leading provider of specialty contracting services to the dynamic telecommunications and infrastructure industry. These services, which are provided throughout the United States and in Canada, include engineering, construction, maintenance and installation services to telecommunications providers, underground facility locating services to various utilities, including telecommunications providers, and other construction and maintenance services to electric and gas utilities and others

Kind of sounds like they dig ditches and lay fiber (and their pictures show that)
SEC filings links here: http://www.dycomind.com/investor-center.aspx

IBD “ratings”
Composite = 99
EPS = 99
RS = 99
Industry group rank #10
SMR = C
Accumulation = A
5 year profit growth rate = 46%

http://stockcharts.com/freecharts/gallery.html?dy
You can see that on Black-Flash-Crash-Monday DY stared into the abyss for about 1 second then took off like superman rocketing to new highs as of today. Translation – this is a strong stock that people are eating up. But why? Well…
Article Headline:
As Rivals Try To Match Verizon’s Fiber, Guess Who Benefits?

Summary:
Biggest telecom field service provider. Poised to take lion’s share in sales of what is shaping up to be a supercycle in the telecom market. Customers: Verizon, ATT, Comcast and others.

(Me: All those Netflix movies and smartphone calls/data have to go through fiber).

Heart of business is putting fiber in the ground for customers (and pulling out the copper). The also maintain the lines and equipment. (But less than 15% of gear supports the wireless networks).

Gartner: total projected telecom equip spending expected to increase 9.5% from $168.8B in 2014 to $184.8B in 2017. Thompson Reuters expects Dycom’s sales to increase 49% during that period to $2.7B up from $1.81B in 2014.

Copper lines to homes are getting maxed out by all the data, so fiber upgrade is a must. (Think 4K video from Netflix).

Since Dec 2014 stock is up 131% . Aug Q4 earnings announcement showed EPS up 102% vs same Q last year (up to 0.97 cents, beating estimates by 14 cents).

CEO It is increasingly likely that in retrospect, calendar year 2015 will be clearly seen as the foundational year for a massive investment cycle in wireline networks, reminiscent of and perhaps more meaningful than one that occurred in the 1990s” Verizon started they 10 year switch to fiber in the 1990s and you might have heard of a stock called JDSU too.

Now Sprint and ATT are doing the same massive change. Others like CenturyLink have also talked about upping their speeds to 1 gigabit/second – which takes fiber. (Right now most of us have a max of 50Mbs for our home internet connections).

Dycom has about 44 subsidiaries and obtained many when the market was bad – copper had slowed and fiber had not really started up, so sounds like they got them for a good deal.

Our spreadsheet here:
https://docs.google.com/spreadsheets/d/1H_v6WOjFi81rM3TH9ZHS…
says 1YPEG is 0.29 (interested now?)

Nothing on TipTree’s spreadsheet.

Pete.

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This is quite interesting. There is a huge shortage in the market for skills and resources that can deploy fiber and maintain them going forward. It is a highly specialized space.

Off all the great reasons you provided why this work will only skyrocket, i think the biggest one is still missing…it is in a space called Community Broadband.

Community Broadband is the general term used for the deployment of “last mile” or Fiber to the X (X can be Home, Curb, Premise, etc). Like FIOS or Google’s Fiberhoods.

The problem, even with Google, is that they deploy these FTTx networks on a very selective basis. They cherry pick cities. And then they cherry pick neighborhoods, creating geographies of “haves” and “have nots.”

Because economic development of communities/cities/towns is directly related to its infrastructure, including telecom infrastructure, communities/cities/towns see themselves falling behind their neighbors. Here in Charlotte, Google has started to build. But they will not go to neighboring towns. Those neighboring towns, who are already trying to compete with Charlotte, are becoming less attractive for people to move to, for businesses to establish themselves there, etc, etc. So what are they to do?

Correct, they are opening up the doors for non-traditional players to come in and build these FTTx networks to connect their entire city. How do they fund that? The cities don’t. They attract new players who are looking to capture this new opportunity, often backed by very affluent financial services firms, pension funds, etc who are not looking at business cases of 5 years or so to make their dollars back (like the ATTs and Verizons, and in a lesser sense Google) but they are looking at this from a 20 or 30 year investment perspective (much like a toll road, for example). For those 2 or 3 decades, the communities benefit from being more competitive, being able to provide better / more modern education, attract new businesses, acquire the foundation for a “smart city” to provide new/more sophisticated services to their residents, etc, etc. This is also what the Federal government is trying to do through CAF funding but that is made available to incumbent players…i believe Windstream and Frontier have both been awarded $. The CAF funding does not really address this challenge.

I have to learn more about Dycom, but this certainly has captured my interest.

Many thanks

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Last mile may be a problem when the franchise (easement) is owned by another company. In CA PacBell and PG&E own a lot of the franchises and will not allow competition to use it.
I had to trench 1/4 mile to the rear of a project to get redundant fiber From the easement at the rail road behind.
Nothing is ever as easy as it seems.
Bruce

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Agreed…and neither are the city politics…this is a long process, but inevitable

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Hi PuddinHead42,

Just a correction:

Nothing on TipTree’s spreadsheet.

It isn’t my spreadsheet. It was created by kevinh68, and it is maintained as a community effort. I came up with the idea for the ‘accelerating earnings’ tab, which kevinh68 graciously added.

I am very thankful for kevinh68’s efforts in creating such a valuable resource. Let’s hear a round of applause for him, and for Saul. This really is a remarkable community!

Tiptree, not willing to take credit where credit is not due!

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Thank you Tip! I appreciate those kind words!

Perhaps because my ears were buzzing I just cleaned up the earnings date column on the spreadsheet. We’re all set for new entries.

https://docs.google.com/spreadsheets/d/1H_v6WOjFi81rM3TH9ZHS…

Earnings season is upon us! Let’s hope the data will finally put the nervous nellies in our markets to rest. I can’t fathom why NKE didn’t already do that last week with its robust sales data in China. The market just isn’t rational. Maybe COST will help on the domestic front tomorrow.

Best,
–Kevin

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