Berko: Dycom good conservative long-term investment

DY continues to face hugely growing demand for larger and more efficient wireline networks from Verizon, AT&T, Frontier, Comcast, CenturyLink and others. Most carriers and networks are determined to offer higher speeds and greater-capacity networks in the future. And because outsourcing by the carriers and cable networks continues to expand to meet the increasing demand, I’m comfortable suggesting that DY’s future revenues and earnings will be impressive. Video over the internet is constantly driving usage and demand for faster broadband connections and more bandwidth. Infrastructure operators, such as tower owners, consume and need all the wireless broadband growth that DY and others can provide. Telecom carriers are sending out vastly more video and data over their networks, and DY is expert at and instrumental in providing these towers with more capacity. This is a continuing and seemingly nonstop business.

On the other side of the fence, many electric and gas utilities are experiencing sluggish growth; however, their capital budgets are near record highs. Some 80 percent of this spending is related to the strengthening and expansion of the power grid, and DY is Johnny on the spot, replacing parts and equipment that are 20 to 30 years old. The power grid is a vital and mammoth interconnected network that delivers power from suppliers to consumers. The grid consists of generating stations that produce electricity, high-voltage lines that carry power from distant sources to demand centers, and distribution lines that connect individual customers. This is all part of DY’s continuing business in the years to come.

DY’s revenues could grow from $30 billion to $45 billion by 2022, while earnings could double, from an expected $5.45 a share this year to $11. And some DY aficionados believe that profit margins could improve to 7.2 percent by 2022, from 5.4 percent, and that the book value could double, to $40, with zero increase in debt. However, I don’t think DY’s Scrooge-like board will consider a cash dividend. That notwithstanding, the urgent need for new bandwidth and the compelling need to improve and protect our power grid suggest that owning Dycom should be a smart investment for a five-year hold. I’d own the stock faster than you can say “golly gee whillikers!”

Thomson Reuters, Market Edge, UBS, Zacks, Bank of America and Value Line seem to agree. And managers of mutual funds at Vanguard, Fidelity, BlackRock and Federated, which together own about 80 percent of DY’s float, have added their imprimatur. Dycom could be an expialidocious investment and may even split.

Malcolm Berko addresses questions about stocks. Reach him at P.O. Box 8303, Largo, FL 33775 or mjberko@yahoo.com.