Dycom Industries (DY) Down 21.9% Since Last Earnings Report: Can It Recover?

It’s been a month since Dycom Industries’ (DY) last earnings report. Shares have lost about 21.9% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Dycom Industries due for a breakout? Before we dive into the recent reaction from investors and analysts, let’s take a quick look at the company’s most recent earnings report in order to get a better handle on the important factors influencing the situation.

Dycom’s fourth-quarter loss wider than expected, first-quarter forecasts weak

Dycom Industries Inc. announced weak results for the fourth quarter of fiscal year 2020 (ended January 25, 2020). Not only did its earnings miss the Zacks Consensus Estimate, but they were also down from year-ago levels. The company provided weak fiscal forecasts for the first quarter.

For the quarter, it saw an adjusted loss of 23 cents per share, wider than the consensus estimate of 2 cents. In the same quarter last year, the company reported earnings per share of 10 cents. Dycom highlighted that unfavorable weather, seasonal effects, large customer program challenges and a slow start to a specific customer’s new system rollout impacted margins in the quarter.

Revenue and key operating data

Dycom’s quarterly contract revenue was $737.6 million, up 1.5% year-over-year. The reported amount also beat the consensus estimate of $727.6 million by 1.4%.

On an organic basis, revenue (excluding storm recovery services, which was $20.4 million in the prior-year quarter) increased 1.3% year-over-year in the fiscal fourth quarter. This was the seventh consecutive quarter of organic growth. The positive results were supported by higher demand from three of the company’s five largest customers as they deployed 1-gigabit wired networks, converged wireless/wireless networks and wireless networks.

The share of the company’s five largest clients in 77.2% of total contract revenues decreased organically by 1.2%. Dycom’s largest customer, Verizon, accounted for 21.9% of total revenue. Verizon grew organically by 3.3% year over year. CenturyLink (second largest customer) added 18.3% to total revenue and grew organically by 31.1%. AT&T had an 18% revenue share; Comcast accounted for 13.8%; and Windstream – representing 5.3% of total revenues – grew organically by 45.9%. Revenues from all other customers increased 10.6% in the organic quarter.

Dycom’s backlog at the end of the reported quarter was $7.314 billion, compared to $6.349 billion at the end of the fiscal third quarter. A backlog of $2.716 billion is projected to be completed within the next 12 months.

Gross margin for the quarter was 14.2%, 175 basis points (bps) below the company’s expectations. Adjusted EBITDA margin also declined 200 basis points to 6% from 8% in the year-ago quarter.

Financial

As of January 25, 2020, Dycom had cash and cash equivalents of $54.6 million compared to $128.3 million as of January 26, 2019. Long-term debt was $844.4 million at the end of fiscal year 2020 compared to $867.6 million at the end of fiscal year 2019.

Guidance for the first quarter of fiscal year 2021

The company expects contract revenues of $730 million to $780 million. The mentioned range indicates a decrease compared to the amount of USD 833.7 million a year earlier.

Earnings (adjusted) are expected to include a loss of 9 cents to earnings of 8 cents per share. The estimated range suggests a decline from year-earlier earnings of 53 cents per share.

How have estimates changed since then?

The latest estimates have shown a downward trend over the past two months. As a result of these changes, the consensus estimate moved by -106.67%.

VGM results

Currently, Dycom Industries has a solid Growth Score of B, although well behind its Momentum Score of D. However, the stock is rated an A for Value, putting it in the top quintile for this investment strategy.

Overall, the company’s Total VGM Score is A. If you’re not focused on one strategy, this score should interest you.

Perspectives

Dycom Industries carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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