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Dycom Industries (DY) vs. Infinera (INFN)
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Bandwidth requirements for the internet are increasing as streaming and other services are delivered via the web by desktop computers and by mobile devices. Here are two companies that may benefit from the need for greater bandwidth. Both are internet infrastructure companies. Dycom Industries (DY) is a mid-cap company with 2015 revenue of just over $2 billion. It has 3 main business lines. Two of these lines are not directly related to internet infrastructure. These 2 lines are underground utility line mapping and installation and maintenance of power grids. The more direct internet infrastructure business is the design, construction and maintenance of telecom networks. Value Line estimates forward growth rates of 15% for revenue and 25.5% for earnings. Using a more conservative 12.5% revenue growth and 15% earnings growth and a high PE of 27.3 and low PE of 15 on my SSG gave an upside downside ratio of 2.9. An estimated low price of 49 was used which was near 60% of the current price of 83.42. This is also close to the low PE times low EPS. I used the trailing 12 months EPS of 3.34. The conservative 60% of current price was chosen due to the low price stability and earnings predictability of this company. The Quarterly trend graph does show even better growth for sales and earnings. I do own shares of Dycom with a purchase in early April of this year. The upside downside ratio was better then. I have been lucky with that choice as shares are up about 30% since then. The next company, Infinera (INFN), makes optical networking equipment. It is a small cap company with a bit over $880 million in revenue in 2015. I do not believe this is a good choice for conservative investors. Its price stability and earnings predictability are low. It barely has 10 years of data available and has been profitable for only the last 2 years. One reason is management abandoned research on a 40GB switching system to concentrate on a 100GB solution. This seems to have paid off as they were the first with a solution at this capacity. Infinera started mainly geared toward long-haul signal processing for distances greater than 100 km including ocean cable networks. A recent acquisition gave it products for connecting metropolitan areas and data centers. Its price has dropped considerably as Microsoft announced it would connect its data centers using a solution co-developed by Microsoft and another network company. Further reading found this solution is in testing phase and is realistically limited to distances of less than 20 km at this time. Infinera currently does about 5% of its business in this niche. Due to the short history of profitability for this company an SSG is less useful. Value Line gives growth estimates of 14% for sales and 70% for EPS. Using 20% growth for both sales and EPS and PEs of 30 for high and 15 for low and an estimated low price of 7 resulted in an upside downside ratio of 2.1. Recent sales growth from the Quarterly Trend Graph supported my 20% sales growth choice. I own shares of INFN in a retirement account. Russell Malley StockCentral Community Leader Edited by moderator Wednesday, October 5, 2016 11:07:13 AM(UTC)
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Rank: Administration
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This is an update of a stock I suggested for possible further study that may be of interest to StockCentral subscribers. This is not a recommendation. Remember, you should always do your own research. For full disclosure, I do have a position in this company through a family account.
Dycom installs and maintains electrical power grids and constructs and maintains telecommunication networks. Demand for telecom services and contruction is expanding with increased demand for internet bandwidth. The work backlog for DY has increased recently. With more content providers offering streaming services this growing bandwidth demand looks solid for the near future. This stock also looks like a good prospect to diversify a portfolio by size. One big risk is a slow down in telecom bandwidth growth. Google is slowing the expansion pace of its gigabit service. This may ease competitive pressure on major telecoms to match these speeds.
DY has taken on more debt so that LT debt is now over 50% of total capital. The debt was used for some acquisitions of smaller companies in the same field. These acquisitions seem to be adding to sales and earnings growth.
The TakeStock quality rating is at 6.3, in the acceptable range and just short of entering the desirable range. Historical EPS growth from 2009 forward is over 20% with sales growth at just under 10%. Recent EPS growth has accelerated past the historical growth rate. Pre-tax profit margin and return on equity have an upward trend.
Attached is an SSG generated using ToolKit. The judgement calls and the rationale are as follows:
EPS growth rate – 12.5%. Both Value Line and the Equity Research Service estimate growth in EPS near or greater than 20%. This is in line with the SSG historical growth. However,both ValueLine and Equity Research Service have low predictability ratings for EPS growth; 12.5 was chosen to take into account this low predictability.
Sales Growth Rate - The Value Line estimate of revenue growth is 16.5% while the estimate from the Equity Research Service is 9.7%. Recent growth has been higher than the 9.6 historical growth. The 10% figure was a reconciliation of multiple estimates. Future growth will come from increased bandwidth needs for telecom networks and updating/repair of electrical grids. Electrical grid work will add a smaller portion to the overall growth.
Projected High PE – While the 10 year average high PE is near 40, Take Stock and the Equity Research Service showed the high PE has remained fairly stable around the average high PE of 26.2 for recent years.
Projected Low PE - Take Stock and the Equity Research Service showed the low PE has remained fairly stable around the average high PE of 13.3 for recent years.
Projected Low Price – Though this company is of medium size, it was a small company in the near past. The price of such companies can be more volatile. This view of DY is validated by low Price Stabilty and Growth Persistance ratings from Value Line. The estimated low price of 49.30 is 60% of the current price of 82.17.
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Rank: Administration
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 DY SSG.pdf (46kb) downloaded 3 time(s).
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I noticed earlier this week that Dycom Industries is on the current Roster of Quality Companies here at StockCentral, with a Quality Rating of 6.3 (Acceptable). They are obviously a bit economically sensitive, as exhibited by the drop-off of earnings in the 2008-2010 recession and recovery. They have been booming in the economic expansion since then. I like that the company's pre-tax profit margin in Section 2 has reached new highs in the last two years. Interesting company!
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Dycom Industries (DY) vs. Infinera (INFN)
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