Dycom's Double-Digit Guidance and Stock Pop Bring Support for These Holdings
As more confirming data arrives, we may need to lift our price target for this position.
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In our continuing efforts at connecting insights, signals and other “dots” as we journey through the balance of the current earnings season and the next wave of investor conferences, we are pleased with comments from specialty contractor Dycom Industries DY this morning. The market is as well given the post-earnings pop in the shares, which can be traced back to Dycom’s beat-and-raise quarterly results.
Based on its backlog and demand dynamics, Dycom increased its annual contract revenue guidance to +12.5%-15.4% year over year, up from 10%-13%. Total backlog rose to $8.127 billion exiting the quarter, up from $7.76 billion in the prior one and $6.364 billion a year ago.
Why does this matter to us?
The drivers cited by Dycom, which include fiber to home deployments, fiber infrastructure to support AI and data center growth, and wireless network upgrades, are the same ones driving our positions in Marvell Technology MRVL, Eaton ETN, United Rentals URI, and Vulcan Materials VMC.
Dycom’s outlook for the current quarter, which likely reflects more favorable construction weather, calls for a more than a nice sequential pickup. Management expects current quarter revenue to climb 10%-14% sequentially. We find the year over year comparison (up 15%-19%) far more compelling, especially as it accelerates from the 10% top-line growth Dycom achieved in the just reported quarter.
While Dycom’s outlook supports many of our holdings, of all of them, we would argue the nature of Dycom’s business most closely correlates with that for United Rentals. Our price target for URI shares is currently $800, but Dycom’s outlook gives us a reason to revisit it, and we’ll aim to do that once we have the April Construction Spending report in hand on June 2.
At the time of publication, TheStreet Pro Portfolio was long MRVL, ETN, URI and VMC.
