Fiber-to-the-home Expansion Will Unlock Significant Opportunities In 2026 And Beyond

Key Takeaways

• Dycom Industries aims to capitalize on fiber-to-home expansion and secure, high-margin projects, driving revenue and margin growth in future fiscal years.
  
• Federal broadband programs and AI infrastructure discussions provide expansion opportunities, with a stock repurchase program indicating commitment to shareholder value.
  
• Exclusion of storm restoration and BEAD revenues, risky low-margin contracts, and unaligned operating leverage pose potential challenges to Dycom's fiscal 2026 growth expectations.

Catalysts

Provides specialty contracting services to the telecommunications infrastructure and utility industries in the United States.

• Dycom Industries is expected to benefit from the ongoing fiber-to-the-home expansion, with over 35 million passings planned for calendar 2024, which should drive significant revenue growth in fiscal 2026 and beyond.
  
• The company sees a large addressable market in building high-capacity, secure, redundant fiber infrastructure for hyperscalers, which is expected to become a significant revenue stream in fiscal 2026 and beyond, potentially impacting net margins positively as these are typically high-margin projects.
  
• Federal and state broadband programs are providing large opportunities for Dycom, with over $1 billion awarded across various states recently, offering potential for revenue growth as these programs come to fruition.
  
• Dycom is actively engaging in discussions around AI digital infrastructure needs, which is creating further opportunities in the long-haul fiber market, expected to drive revenue and possibly expand EBITDA margins due to scale efficiencies.
  
• The introduction of a new $150 million stock repurchase program and the disciplined capital allocation strategy suggests that Dycom is committed to returning value to shareholders, potentially enhancing earnings per share through reduced share count.

Dycom Industries Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Dycom Industries's revenue will grow by 10.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.0% today to 5.7% in 3 years time.
• Analysts expect earnings to reach $360.8 million (and earnings per share of $12.38) by about April 2028, up from $233.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.4x on those 2028 earnings, up from 18.9x today. This future PE is lower than the current PE for the US Construction industry at 21.3x.
• Analysts expect the number of shares outstanding to decline by 0.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.63%, as per the Simply Wall St company report.

Dycom Industries Future Earnings Per Share Growth

Risks

• Dycom Industries is not including storm restoration revenues in their fiscal 2026 outlook which implies potential volatility and unpredictability in revenue streams if future storm-related work is absent. This could impact overall revenue growth goals.
  
• The company is not factoring in any revenues from BEAD (Broadband Equity, Access, and Deployment) programs in the fiscal 2026 outlook due to uncertainty and delays, which could lead to missed revenue opportunities if program rollout is slower than expected or if other providers capture more market share.
  
• Dycom's strategy to grow backlog with low-margin, high-risk contracts could pressure net margins and profitability if projects are mispriced or operational challenges arise.
  
• The fiscal 2026 growth expectation assumes smooth execution of customer expansion plans, but any slowdown or delay in key projects like fiber-to-the-home or long-haul network projects could negatively affect expected revenue growth.
  
• Operating leverage improvements and SG&A expenses have not yet aligned with substantial top-line growth, suggesting potential constraints on margin improvement and earnings expansion unless operational efficiencies are realized.

Valuation

• The analysts have a consensus price target of $210.875 for Dycom Industries based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $234.0, and the most bearish reporting a price target of just $183.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.3 billion, earnings will come to $360.8 million, and it would be trading on a PE ratio of 20.4x, assuming you use a discount rate of 7.6%.
• Given the current share price of $152.32, the analyst price target of $210.88 is 27.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.