At the end of the day, an investor expects a good return for his investment. Dycom Industries (DY, Financial) is one of those growth stocks in the construction industry playing well.
This construction company has provided excellent quarterly results, including a 34.97% increase in contract revenues. Dycom has provided strong guidance for its fiscal fourth quarter as well as the first quarter of fiscal 2017. Dycom’s potential customers include AT&T Inc. (T, Financial), Comcast Corp. (CMCSA, Financial) and Verizon Communications Inc. (VZ, Financial). The company’s top five customers have represented 72.5% of revenues in third quarter 2016.
The company began in 1969, and is a provider of specialty contracting services (including end-to-end project management and maintenance) throughout the U.S. and in Canada. Dycom provides 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.Ă‚ The company also provides tower construction, lines and antenna installation, and foundation and equipment pad construction for wireless carriers, as well as equipment installation and material fabrication and site testing services.
Strong third-quarter results
On May 24, this Palm Beach Gardens, Florida-based company reported its financial results for the third quarter ended April 23. The company’s total contract revenues increased 34.97% to $664.6 million, compared to $492.4 million for the comparable prior-year period. In the reported quarter, the contract revenues grew 28.7%, and contract revenues from acquired businesses were $30.8 million.
Dycom’s adjusted EBITDA (on a non-GAAP basis) increased 45.73% to $91.87 million (13.8% of contract revenues), compared to $63.04 million (12.8% of contract revenues) for the same period last year. Non-GAAP adjusted net Income for the reported quarter increased 75.86% to $35.7 million, or $1.08 per common share diluted, compared to $20.3 million, or 58 cents per common share diluted. Further, the company’s adjusted net income (on a GAAP basis) was $33.08 million, or $1.00 per common share diluted. General and administrative expenses for the reported quarter increased 26.41% to $56.52 million, compared to $44.71 million for the year-ago quarter.
Dycom ended the quarter with cash and cash equivalents of $19.33 million, and long-term debt of $723.95 million (an increase of 38.73%, compared to $521.84 million for the comparable prior-year period).
The following chart provides Dycom’s different metrics.
| Metrics | Nine months ended April 23, 2016 | Nine months ended April 25, 2015 | % change |
| Contract revenues | $1.883 billion | $1.443 billion | 30.49% |
| Adjusted Net Income (on a GAAP basis) | $79.38 million | $50.5 million | 57.19% |
| Diluted EPS | $2.37 | $1.44 | 64.58% |
| General and administrative expenses | $155.00 million | $131.22 million | 18.12% |
Share repurchase
During the reported quarter, Dycom repurchased 1,557,354 common shares for $100 million at an average price of $64.21 per share.
Projections
Dycom expects total contract revenues for the fourth quarter of fiscal 2016 to range from $750 million to $780 million and non-GAAP adjusted diluted earnings per common share to range from $1.45 to $1.60. Further, on a GAAP basis, diluted earnings per common share are expected to be in the range of $1.36 to $1.51. Depreciation and amortization expenses are expected to be in the range of $35.0 million to $35.7 million. Dycom expects that general and administrative expenses as a percentage of revenue will decline from fourth quarter 2016.
For quarter one 2017, Dycom expects its total revenues will include approximately $35 million from businesses acquired in quarter one 2016. Depreciation and amortization expenses are expected to be in the range of $32.2 million to $32.9 million.
Growth
Currently, the telecom industry is booming as people want to stay connected round the clock. Therefore, telecom companies are making necessary arrangements to attract more and more customers in their arena. Telecom is a capital-intensive industry and therefore, it requires an extensive network infrastructure to provide fixed line and wireless services. This has paved the way for Dycom to grow further.
On May 24, Dycom has expanded its credit agreement capacity to $800 million (consisting of the $350.0 million term loan facility and a $450.0 million revolving facility). The company will utilize this additional term loan to pay down revolving loans, thus increasing availability under its revolving facility and for general corporate purposes.
Recently, Dycom has entered into a definitive agreement with Goodman Networks Inc. to acquire certain assets and related liabilities used in Goodman’s current wireless network deployment and wireline businesses for approximately $107.5 million in cash. This agreement will generate revenues of approximately $150 million to $165 million over the next 12 months.
(Source: company website)
On a concluding note
Overall, Dycom is a rock-solid company with a notable return on equity, solid stock price performance, impressive record of earnings per share growth, strong revenue growth and compelling growth in net income. Further, Dycom’s scale and market position provides immense opportunity to expand.
Dycom has provided a sixth straight quarter with double digit organic growth. Further, revenues from third quarter 2016 top five customers increased 48.9% organically. Finally, with the recent quarterly release, the company is aiming for a better future and is all set to deliver a healthy menu to its investors. It is expected to create greater shareholder returns.
Disclosure: I do not hold any position in the company.
