The above post garnered a few recs, but no discussion. I haven’t invested in DY yet, but am seriously considering a position. In this post, I’ll provide a bit more info about the company and why I’m interested. I’d like to hear other’s opinions as well (hopefully).
First, you can see good revenue growth and excellent earnings growth recently. That is reason #1 to look further into DY.
What does DY do?
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.
Who are their customers?
Their top 5 customers represent 65% of their business and were the following with the first number representing the portion of sales and the second number in parentheses representing growth for that customer:
AT & T - 19.1% (15.4%)
CenturyLink - 15.6% (16.5%)
Comcast - 12.0% (21.8%)
Verizon - 9.7% (71.2%)
Unnamed - 8.5% (120.9%)
So while there is concentration risk, each customer is showing heady growth. I’m guessing the unnamed customer is Google with their Fiber deployment, but could be wrong. DY also lists a solid backlog and multi-year construction & maintenance contracts with these customers.
Why should we expect this kind of growth going forward?
DY is riding the data wave. Telcos are responding to the data needs of their customers and DY is delivering this by constructing the fiber network. They expect this wave to continue as Telcos connect small & medium size businesses. Connect America Fund (CAF) II should drive growth although management hasn’t baked in any numbers based on that initiative. In short, they are seeing an increase in spending by Telcos and are locking in long term contracts at the same time. They have a large scale, but are still expanding in many parts of the country.
Who are their competitors?
I don’t know. Maybe someone else can expound on this.
DY appears well positioned with the top players who are upgrading their data networks in response to demand. Their core customers make up a large percentage of their business but are all growing at a healthy clip. The demand for the business is currently strong and appears to be growing significantly for at least several years.
I’m looking for reasons NOT to invest in DY. It looks very attractive. What am I missing?