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Why Shares of Dycom Industries Inc. Are Down 14%

By Daniel Miller – Oct 26, 2016 at 1:57PM

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The news that Alphabet would be scaling back its plans for Google Fiber is likely why shares of Dycom Industries are falling 14% today.

Image source: Getty Images.

What happened

Shares of Dycom Industries Inc. (DY -1.64%), a company that provides specialty contracting services throughout the United States and in Canada for engineering, construction, maintenance, and installation services for telecommunications providers, were down nearly 14% during midday Wednesday trading.

So what

While it hasn't been confirmed by Dycom officially, it's widely speculated that the company does work for Alphabet Inc. (GOOG -0.57%) (GOOGL -0.49%), and the latter's comments about halting the expansion of its Google Fiber program are probably behind the stock-price decline.

Previously, Alphabet planned to move its fiber internet service to more than 20 cities, but now it has decided to pull back from eight cities that it had announced plans for -- including large markets such as Los Angeles, Dallas, and Phoenix. Furthermore, the Google Fiber division announced the departure of CFO Craig Barratt, and that it would reduce its workforce by 9%.

Now what

These are definitely not positive developments for Dycom, but in my opinion the reaction seems to have gone a bit far. Consider that KeyBanc analyst Tahira Afzal estimates that Alphabet only generated about 6% of Dycom's 2016 total revenues. Investors also have to ask themselves if this is merely a speed bump in Google Fiber, or the first step in abandoning the project entirely -- while possible, I doubt it's the latter.

Until more information is available about Google Fiber's plans, it's wise for investors to avoid a knee-jerk reaction today, despite the significant decline

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Daniel Miller has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (C shares).

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