Dycom Industries Inc...58.35 on the NYSE
Dycom are a leading
provider of specialty contracting services throughout the United States
Developments in
consumer and business applications within the telecommunications industry,
including advanced digital and video service offerings, continue to increase
demand for greater wireline and wireless network capacity and reliability.
Telecommunications providers outsource a significant portion of their
engineering, construction, maintenance, and installation requirements, driving
demand for the services Dycom provide.
Telecommunications
network operators are increasingly deploying fiber optic cable technology
deeper into their networks and closer to consumers and businesses in order to
better respond to consumer demand, competitive realities, and public policy
support. Telephone companies are deploying fiber to the home to enable
video offerings and 1 gigabit high-speed connections. Cable operators continue
to increase the speeds of their services to residential customers and they
continue to deploy fiber for business customers. Deployments for business
customers are often in anticipation of the customer sales process. Fiber deep
deployments to expand capacity as well as new build opportunities are
increasing.
Significant demand
for wireless broadband is driven by the proliferation of smartphones and other
mobile data devices. To respond to this demand and other advances in
technology, wireless carriers are upgrading their networks and contemplating
next generation mobile and fixed wireless solutions such as small cells and 5G
technologies. Wireless carriers are actively spending on their networks to
respond to the significant increase in wireless data traffic, to upgrade
network technologies to improve performance and efficiency, and to consolidate
disparate technology platforms. Wireless construction activity and support of
expanded coverage and capacity is expected to accelerate through the deployment
of new or enhanced macro and small cells. These
initiatives present long-term opportunities for Dycom with the wireless service
providers they serve. As the demand for mobile broadband grows, the amount
of wireless traffic that must be “backhauled” over customers’ fiber networks will
increase.
From the Management’s
Discussion and Analysis from their recent Quarterly Report
The company serves a narrow base of customers but they are
huge in size…
T&T Inc.
Verizon Communications Inc
Comcast Corporation
CenturyLink Inc
Windstream Holdings Inc
Charter Communications Inc
This makes their earnings lumpy as these big guys will cut
back on their capital spending depending on the way the economy shifts and
turns over time. Wall Street in turn, punishes Dycom for the earnings misses
that ensue…Yes its stupid but that’s the herd effect of the groupthink on Wall Street... but
it’s all to the advantage of the individual investor who refuses to take the
consensus view.
The following is the CEO's Letter to the Shareholders as of April
2019…
Gordon Reid of GoodReid Investment Counsel has been touting
this stock for awhile now…the following are a sample of his comments while
guesting on BNN Bloomberg’s Market Call (a call-in investment talk show)
'Dycom is a telecom services company, capturing a large
share of the massive amount of work to upgrade wireline networks to accommodate
greater bandwidth. Recent financial reports showed lumpy results, as customers’
annual budgets and consolidation in the telecom space led to a pause in
spending. What’s lost in the market’s
reaction is the decades-long initiatives that will likely result in an annual over
15 per cent growth in earnings before interest and taxes for Dycom.'
'Dycom is a telecom services company,
capturing a large share of the massive amount of work to upgrade wireline
networks to accommodate greater bandwidth. Recent financial reports showed lumpy
results as customers front-loaded annual budgets and consolidation in the
telecom space led to a pause in spending. What is lost in the market’s reaction
is the decades-long initiatives that will likely result in an annual 15 per
cent+ growth in EBIT for Dycom.'
'This is in the business
of basically wiring North America for 1 Gb
streaming of data transmission. We are all looking for
“more”, which comes in the form of a more complex data packet, and certainly
streaming. Everybody is getting into streaming and we are watching movies and
TV shows on computers and mobile devices. We
need the transmission infrastructure to do
that, and this company does that. Management is confident that over the long-term, they can
grow EBIT (earnings before interest and taxes) at a 15%-16% annual clip. This makes this a very compelling long-term
buy. Be patient.'
Thank you, Gordon
Postscript
I was first alerted to Dycom Industries by scanning the holdings of Southernsun Asset Management LLC...That is another fund I follow as it has a narrow concentrated investment portfolio. Again, that means they prefer to do their own due diligence instead of diversifying their returns away. I often come across investment ideas that way...In this case Southernsun bumped up their already large holding of Dycom by an additional 30 percent by the end of the first quarter. I then did some quick research using other resources I have gathered together through the years...nothing intense really. And bang!...and interesting investment idea presented itself...This is largely how I go about researching investment ideas...By focusing on under-followed and under-valued information.
Thank you, Gordon
Postscript
I was first alerted to Dycom Industries by scanning the holdings of Southernsun Asset Management LLC...That is another fund I follow as it has a narrow concentrated investment portfolio. Again, that means they prefer to do their own due diligence instead of diversifying their returns away. I often come across investment ideas that way...In this case Southernsun bumped up their already large holding of Dycom by an additional 30 percent by the end of the first quarter. I then did some quick research using other resources I have gathered together through the years...nothing intense really. And bang!...and interesting investment idea presented itself...This is largely how I go about researching investment ideas...By focusing on under-followed and under-valued information.
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