Mid-Caps CommScope, Dycom Outperform Broader Telecom Industry

When you think of telecom stocks, big names like Verizon Communications NYSE: VZ and AT&T NYSE: T may come to mind, but smaller stocks in other segments of the telecom industry, such as CommScope NASDAQ: COMM and Dycom Industries NYSE: DY are better performers. 

It’s not unusual to find small- and mid-cap stocks outperforming larger names by a wide margin. Frequently, but not always, these smaller companies are younger and have new products and services with strong demand. Because the companies are newer, management is eager to pursue new projects with fast-growth potential. 

Telecom service providers do exactly what that characterization describes: Offer a range of support to the telecommunications industry.

For example, North Carolina-based CommScope has a market cap of $2.682 million. The company provides infrastructure solutions for specific layers of telecom networks. In particular, it makes broadband and video gear, antennas and other video equipment and networking systems for home and business applications, as well as data centers. 

Topped Wall Street Views

CommScope reported its third quarter early Thursday. Earnings came in at $0.50 per share on revenue of $2.381 billion. That was ahead of analysts’ consensus estimates, which called for per-share earnings of $0.42 on revenue of $2.30 billion.

Previous to Thursday’s report, the company grew revenue between 4% and 8% in the past three quarters. Earnings have declined year-over-year, but the rate of decline is slowing. The company has a history of being consistently profitable. 

According to MarketBeat earnings data for CommScope, the company beat top and bottom-line earnings views in each of the previous three quarters. 

The stock’s price performance reflects this sound fundamental performance. Its recent returns are inclusive of:

• 1 month: +40.93%
• 3 months: +39.72%
• Year-to-date: +17.57%
• 1 year: +15.69%

Although CommScope began correcting way back in July 2021, recent uptrends resulted in those healthy year-to-date and one-year gains.  

Institutional ownership data compiled by MarketBeat show more institutional buyers than sellers in the past 12 months. Institutional buying is what drives a stock higher, with the temporary exception of meme stocks, such as AMC Entertainment NYSE: AMC on occasion. 

CommScope broke out of a first-stage cup-shaped base on October 25, but as of Thursday’s close, was a penny below its structure high point of $12.88.

Part Of S&P 400 Mid-Cap Index

Dycom Industries is also a mid-cap, with a market capitalization of $3.45 billion. It’s a component of the S&P 400 mid-cap index, which is an advantage. There are seven ETFs tracking various slices of the S&P 400. That’s not nearly as many as the large-cap S&P 500, of course, but being part of an index means that these ETFs need to reconstitute at regular intervals to keep holdings in line with weightings. 

When you see companies digging up streets and sidewalks to install new fiber optic lines, you may be seeing Dycom at work. The company should be among those getting a boost from infrastructure spending, as smaller regional telecoms update their networks. 

Dycom began forming a cup pattern immediately after its most recent earnings report on August 24. It’s slated to report its third quarter on November 22 before the open, with Wall Street eyeing net income of $1.28 per share on revenue of $975.51 million. Both would be increases over the year-ago quarter. 

Accelerating Revenue Growth 

According to MarketBeat earnings data, Dycom exceeded analysts’ expectations for earnings and revenue in each of the past four quarters. 

The Florida-based company has seen revenue growth accelerate in the past two quarters, with earnings growing at quadruple- or triple-digit rates in the past two. 

For the current year, which is fiscal 2023, Wall Street expects earnings to increase by 176%, to $3.83 per share, and another 46% in fiscal 2024, to $5.60 per share.