The Resilience of Communications Infrastructure Contractors: UBS's Bullish Case for Dycom and EMCOR

The communications infrastructure contracting sector has emerged as a standout performer in 2025, with UBS Group's recent research underscoring its resilience and growth potential. Firms like Dycom Industries (DY) and EMCOR Group (EME) are at the forefront of this trend, leveraging favorable industry tailwinds such as fiber deployment, data center expansion, and government-funded infrastructure programs. UBS's bullish outlook for these companies—coupled with a broader “beat and raise” momentum across the sector—highlights a compelling case for investors seeking stable, high-growth opportunities in a macroeconomic climate marked by uncertainty.

Macro Tailwinds Fueling Sector Strength

The sector's growth is being driven by a confluence of structural factors. First, the U.S. government's $40 billion Broadband Equity, Access, and Diversity (BEAD) program is accelerating rural fiber deployments, creating a surge in demand for contractors like Dycom. As of early 2025, $6 billion in BEAD funding has already been allocated, with UBS projecting that this will translate into sustained revenue streams for firms specializing in gigabit and wireless infrastructure.

Second, the digital economy's insatiable appetite for data centers is driving demand for mechanical and electrical construction services. EMCOR, for instance, has seen its Electrical and Mechanical Construction segments grow by 42.3% and 10.2%, respectively, in Q1 2025, as companies invest in facilities for artificial intelligence, cloud computing, and semiconductor manufacturing. UBS notes that EMCOR's backlog of $11.8 billion—17.1% organic growth year-over-year—reflects its dominant position in this high-growth niche.

Third, constrained labor markets are enabling contractors to command pricing power. With skilled labor shortages persisting, firms like Dycom and EMCOR can selectively take on high-margin projects and optimize margins through operational efficiency. This dynamic is particularly beneficial for companies with strong project execution capabilities, as UBS emphasizes that “consistent performance and cash flow stability” are now prioritized by investors over short-term booking fluctuations.

Dycom and EMCOR: Execution Excellence and Strategic Expansion

UBS's analysis highlights Dycom's and EMCOR's ability to exceed expectations even as new project bookings slow. Dycom's Q1 2025 results, for example, showed 9.3% year-over-year revenue growth to $1.142 billion, with organic growth of 2.5% and adjusted EBITDA margin expansion to 11.5%. The company's $6.364 billion backlog—$3.863 billion of which is expected to be completed within 12 months—provides visibility into future cash flows. UBS also cites Dycom's geographic diversification, including recent acquisitions in Alaska, as a strategic advantage for capturing BEAD-related opportunities.

EMCOR, meanwhile, has raised its full-year EPS guidance to $22.65–$24.00 after reporting Q1 earnings of $5.26 per share (26% year-over-year growth). The company's Electrical and Mechanical Construction segments drove 42.3% and 10.2% revenue growth, respectively, while the acquisition of Miller Electric added $183 million in revenue and $400 million in remaining performance obligations. UBS raised its price target for EMCOR to $715 from $570, citing its strong backlog, margin sustainability, and potential to follow Comfort Systems USA's recent Q2 outperformance.

Valuation and Long-Term Prospects

Both Dycom and EMCOR are trading at valuations that UBS believes understate their long-term potential. Dycom's price-to-EBITDA ratio of 10.5x and EMCOR's PEG ratio of 0.41 suggest undervaluation relative to their growth trajectories. UBS projects at least 7% annual organic revenue growth for EMCOR's construction businesses through 2027, driven by investments in data centers, semiconductors, and pharmaceuticals. For Dycom, margin expansion of 25–75 basis points in 2025, fueled by operating leverage and productivity gains, further enhances its appeal.

Investment Implications

The sector's resilience and consistent earnings momentum make it an attractive hedge against macroeconomic volatility. UBS's “Buy” ratings for Dycom and EMCOR are justified by their ability to balance growth and profitability, even in a challenging booking environment. Investors should consider the following:

1. Dycom (DY): A core holding for those seeking exposure to rural broadband expansion and fiber infrastructure. Its disciplined capital allocation and strategic acquisitions position it to outperform in a fragmented market.
2. EMCOR (EME): A high-conviction play on data center and industrial construction. The raised price target of $715 implies a 15.5% upside from current levels, reflecting UBS's confidence in its margin expansion and backlog strength.

While risks such as labor shortages and regulatory changes persist, the long-term fundamentals for communications infrastructure remain robust. As UBS notes, “The sector's visibility and cash flow generation make it a compelling long-term investment, particularly for investors prioritizing stability and growth in a low-interest-rate environment.”

In conclusion, the communications infrastructure contracting sector offers a rare combination of macro-driven demand and operational excellence, with Dycom and EMCOR exemplifying the resilience and innovation that define this space. For investors, the current valuation and UBS's bullish case present a timely opportunity to capitalize on the next phase of infrastructure-led growth.