On Thursday, Craig-Hallum maintained a positive outlook on shares of Dycom Industries (NYSE:DY), increasing the price target to $210 from the previous $190 while retaining a Buy rating on the stock. The firm recognized Dycom's solid performance despite a modestly lower guidance for Q3, attributed to challenging year-over-year comparisons.
In the previous year's Q3, Dycom had recognized $26 million in change order and project close-out revenue, which had positively impacted EBITDA margins by 1.8%.
The company's backlog, which is a key indicator of future revenue, showed a 7% sequential increase, amounting to over $6.8 billion. This backlog growth is seen as a positive sign for Dycom's long-term growth prospects.
The analyst highlighted the ongoing expansion of fiber deployments to support higher broadband connectivity speeds, wireless backhaul, and the convergence of wireline and wireless networks as secular trends that favor Dycom's business model.
Further bolstering the company's outlook is the progress in government funding for broadband expansion. Management noted that 35 States and Territories have completed all 10 approval steps for the Broadband Equity, Access, and Deployment (BEAD) program, which controls $22 billion or 53% of the program's total funds. Dycom anticipates the opportunity to capitalize on BEAD-driven projects starting in the second half of 2025.
The expansion of artificial intelligence data centers is also driving demand for Dycom's services. There is an increased interest in both metro fiber rings and intercity network builds, a level of interest that the company has not seen in 25 years, according to the analyst.
Despite the dip in share price following the Q2 report, Craig-Hallum views the current valuation as an attractive entry point for investors. The updated price target of $210 is based on an 11x EV/EBITDA multiple applied to the firm's fiscal year 2026 EBITDA estimate of $648 million.
InvestingPro Insights
As Dycom Industries (NYSE:DY) continues to navigate through a competitive landscape, real-time data from InvestingPro provides a deeper perspective on the company's financial health and market performance. With a market capitalization of $5.22 billion and a P/E ratio of 24.13, Dycom is positioned as a company with a stable valuation relative to its earnings. This is further supported by a PEG ratio of 0.68, indicating potential for earnings growth compared to its P/E ratio.
InvestingPro Tips highlight that Dycom has experienced a high return over the last year, with a 1 Year Price Total Return of 82.94%. Moreover, the company's liquid assets exceed short-term obligations, which is a reassuring sign for investors concerned about financial stability. These metrics are particularly relevant given the analyst's positive outlook and the increasing backlog, suggesting that Dycom is well-equipped to handle upcoming projects and growth opportunities.
For those considering an investment in Dycom Industries, there are 11 additional InvestingPro Tips available, providing a comprehensive analysis of the company's performance and potential. With the next earnings date on August 21, 2024, investors can look to these tips for timely and strategic insights.
Overall, the InvestingPro data and tips provide a valuable layer of context to the analyst's favorable view of Dycom Industries, reinforcing the company's strong market position and potential for profitability in the upcoming year.
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