Dycom Industries (DY) Weakness Tied to Reduced Expansion Plans at Google Fiber (GOOG) (GOOGL) (MTZ)

October 26, 2016 9:53 AM EDT
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Weakness in Dycom Industries (NYSE: DY) Wednesday was tied to reports Google Fiber cut its expansion plans.

Yesterday, Google Fiber said in a blog post "In terms of our existing footprint, in the cities where we’ve launched or are under construction, our work will continue. For most of our 'potential Fiber cities' — those where we’ve been in exploratory discussions — we’re going to pause our operations and offices while we refine our approaches."

Additionally, Craig Barratt, SVP, Alphabet and CEO of Access said he would step down.

Analyst Tahira Afzal of KeyBanc discussed impact on Dycom Industries and MasTec (NYSE: MTZ), stating, "We view the news as perhaps partly expected given GOOGL’s initial region-specific pause in its Silicon Valley build-out this past summer, though we gauge this will nevertheless negatively impact DY, in particular, from a sentiment standpoint."

The analsyt continued, "We think an eventual use of more aerial based technologies suggest a net neutral to slightly positive bias in regard to longer-term implications for MTZ. We think a more broad-based halt could introduce risk to the scope and pace of the overarching build-out over the longer term given it is perceived to have been the initial cause for traditional service providers ramping up on giga fiber capex. That said, our recent work/trade show channel checks suggest the need for backhaul and the housing cycle continue to play an important role in fiber build-out needs at this juncture. As such, we remain comfortable with our DY and MTZ estimates for 2016/2017, though see potentially capped upside to our DY estimates for FY17 at this juncture."

Afzal added, "We estimate GOOGL to have represented roughly 6% of total annual revenues in FY16 for DY, and we estimate a low single-digit revenue contribution for MTZ for 2016. We refer investors to our detailed thematic write-up on telecom wireline infrastructure post a recent trade show attendance, and our initial quick alert on Google’s initial San Jose pause."

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