Dycom Stock Up 21.2% Year to Date: Is the Rally Still Worth Chasing?

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The rally has been supported by strong fiber infrastructure spending, growing data center exposure, record backlog and better profitability. Dycom's fiscal first-quarter 2027 results strengthened the case, with contract revenues jumping 56.1% year over year to $1.96 billion and organic growth reaching 24.7%. Adjusted EBITDA surged 74.6% to $262.5 million, while adjusted EPS increased 84.9% to $4.42. The adjusted EBITDA margin expanded 141 basis points to 13.4%.

Still, the stock's valuation premium and mixed estimate revisions suggest that investors should weigh Dycom's strong operating momentum against the expectations already built into the shares.

Dycom's Fiber Demand Supports Further Growth

Dycom remains well-positioned to benefit from a multiyear investment cycle in broadband infrastructure. Communications revenues reached $1.57 billion in the fiscal first quarter and increased 24.7% organically, helped by fiber-to-the-home programs, long-haul and middle-mile fiber builds and growing maintenance services. Communications adjusted EBITDA increased 28% to $192.4 million, with margin improving to 12.3%.

Management continues to see strong demand for strategic multiyear fiber-to-the-home and long-haul programs. The company is also expanding geographically and investing in additional workers to support the growing workload. Dycom added 730 employees during the fiscal first quarter, underscoring the scale of the opportunity it is preparing to address.

BEAD-related spending provides another potential growth source. Management said state-level and subgrantee activity is progressing and could provide upside to backlog and the longer-term outlook.

Dycom's Record Backlog Improves Visibility

The strength of the demand environment is especially clear in Dycom's backlog. Total backlog reached a record $11.9 billion at the end of the fiscal first quarter, rising 25% sequentially and supporting a 2.2X book-to-bill ratio. Management noted that recent awards are becoming more diversified across customers, geographies and demand drivers, while some customers are extending contract durations to secure Dycom's skilled workforce.

Of the total backlog, Communications accounted for $10.8 billion, and Building Systems represented $1.1 billion. Approximately $6.4 billion is expected to be completed over the next 12 months.

This visibility matters because Dycom is investing heavily in employees and capacity. A large committed workload reduces some of the risk associated with those investments and gives management a clearer path for sustaining growth.

Data Centers Expand Dycom's Growth Runway

Building Systems is becoming a meaningful second growth engine. The segment generated $395.4 million of fiscal first-quarter revenues and $70 million of adjusted EBITDA, producing a strong 17.7% margin as Power Solutions ramped faster than initially expected.

Dycom is also broadening its data center capabilities through acquisitions. The company agreed to acquire National Technology Integrators for $275 million. The business specializes in structured cabling inside data centers, along with advanced audio-visual and security systems, and has an expected initial annual revenue run rate of roughly $175 million. Its historical adjusted EBITDA margin has been in the mid-to-high teens.

The deal should complement Power Solutions and Dycom's Communications operations, allowing the company to offer infrastructure services from server racks through long-haul networks and ultimately to homes and businesses. This broader offering could create cross-selling opportunities and deepen Dycom's exposure to hyperscaler and data center investment.

Dycom Raises Fiscal 2027 Outlook

Following the strong start, management raised its fiscal 2027 revenue outlook to $7.38-$7.65 billion, implying GAAP growth of 33.1%-37.9% and organic growth of 12.6%-15.8%. Communications revenues are projected to be $6.03-$6.20 billion, while Building Systems revenues are expected to be $1.35-$1.45 billion. Dycom also continues to expect consolidated adjusted EBITDA margin expansion.

For the fiscal second quarter, management expects revenues of $1.94-$2.01 billion, adjusted EBITDA of $284-$303 million and adjusted EPS of $4.40-$4.82. Importantly, the guidance issued with fiscal first-quarter results excluded contributions from the pending National Technology Integrators acquisition.

Consensus expectations also point to strong growth. The Zacks Consensus Estimate calls for fiscal 2027 EPS of $16.39, up from $16.35 over the past 30 days and implying 36.9% growth. Fiscal 2028 EPS is projected to rise 21.6% to $19.94, although the estimate has edged down from $19.95. Revenue estimates imply growth of 37.2% in fiscal 2027 and 13.1% in fiscal 2028.

DY EPS Estimate Revision

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Dycom's Valuation and Cash Flow Warrant Attention

Despite the strong outlook, valuation leaves less room for execution setbacks. Dycom trades at 22.39X forward 12-month earnings, above the industry's 21.58X. That premium is not excessive, but it suggests investors are already paying for above-industry growth.

DY Valuation (P/E F12M)

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Cash flow is another point to watch as Dycom invests for expansion. Operating cash outflow improved to $24.6 million in the fiscal first quarter from $54 million a year earlier, while free cash outflow narrowed to $92.1 million from $122.6 million. Dycom ended the quarter with $538.8 million in cash, $2.30 billion of notional net debt and $1.29 billion of liquidity.

Pro forma net leverage stood at roughly 2.3X adjusted EBITDA. While that provides financial flexibility, acquisitions and continued investment make leverage and cash conversion important metrics to follow.

Dycom Faces Strong Infrastructure Rivals

Dycom competes with MasTec MTZ in broadband, fiber and wireless infrastructure, Quanta Services PWR in communications and utility infrastructure and MYR Group MYRG in electric utility and specialty contracting services. All three have outperformed Dycom this year. Quanta Services shares have climbed 59.4% year to date (YTD), MYR Group has gained 49.8% and MasTec has risen 31.6% compared with Dycom's 21.2% advance.

Dycom, however, offers a lower earnings multiple than all three. Its 22.39X forward P/E compares with 38.04X for Quanta Services, 25.61X for MYR Group and 25.13X for MasTec. Quanta Services commands the largest premium as investors price in its broad utility and power infrastructure exposure. MasTec also benefits from strong communications and energy infrastructure demand, while MYR Group offers substantial electric transmission and distribution exposure. Dycom's relative valuation therefore remains reasonable despite trading slightly above its own industry average.

Should Investors Chase the DY Rally?

Wall Street remains highly positive on Dycom. The stock has an Average Brokerage Recommendation of 1.18, with 10 of 11 brokerage recommendations carrying a Strong Buy rating. The average price target of $631 implies roughly 54% upside from the latest closing price.

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There is good reason for that optimism. Record backlog, strong organic fiber growth, improving margins, rising data center exposure and an increased fiscal 2027 outlook provide Dycom with several paths for earnings expansion. Yet the stock already trades at a premium to its industry, cash flow remains negative on a seasonal basis and estimate revisions are not uniformly positive.

With Dycom carrying a Zacks Rank #3 (Hold), existing investors may have reason to stay invested and benefit from the multiyear digital infrastructure cycle. However, after the 21.2% YTD gain, new investors may want a more attractive entry point rather than aggressively chasing the rally at current levels. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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