Thursday, August 18, 2005

Dycom can not get its act together

Why would any rational investor want to own DY? In this fairly robust environment for capital spending by telco, the company has lowered guidance last three quarters . VZ which accounts for 1/3 of DY revs has nothing but raised capex in recent times. DY announced that it expects revenues at low end of its previous guidance and EPS below the guidance. So not only does DY have any idea when VZ (or other revenues) are coming in they also do not really know what margins they can earn. Not a great situation. DY clearly has visibility issue and it has been hiring a lot of contractors to get work done, some of these new hires are not trained-hands which leads to lower yields hence lower margin.

I do not believe there is any thing to worry about from VZ and its capex spending plans the issue remains with DY. I am not too worried about MTZ (a competitor of DY) and believe MTZ might present a better opportunity given that its margins have more upside where as DY margins are headed lower. DY also counts BLS and CMCSA as major customers so do not expect this company to just disappear but near term issues could put a lid on upside for the stock.

If you are knowledgeable on why DY has such hard time please feel free to email me or post your comments.


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