Is CDW Stock A Buy?

CDW Corporation (NASDAQ:CDW) is value-added technology reseller that serves the business-to-business market.

As an Information Technology (IT) supplier, the company grew to be one of the largest players in a highly fragmented enterprise technology market.

It sells all the latest modern technologies, which has buyers musing the question: is CDW stock a Buy?

The company’s integrated technology solutions form a full-service suite that supports the entire IT lifecycle of its products. This means it’s more than just a tech sales team – it’s an integrative IT consulting firm that harvests long-term client relationships through continued after-sale services.

It’s a middleman between technology vendors and their customers and saves overhead costs by selling third-party instead of manufacturing in-house. And it partners with its brands to be reimbursed for portions of its advertising budget.

This slick business model has made CDW one of the top original equipment manufacturer (OEM) sales partners consistently.

Can investors get wholesale value buying CDW stock or will they be stuck paying over sticker price?

CDW Has Fortune 100 Customers

CDE was founded in 1984 as Computer Discount Wearhouse. By 2006, it had a massive west-coast distribution center and became a top reseller of IBM (IBM), Cisco (CSCO), and Microsoft (MSFT) products. It continued growing through acquisitions and went public in July 2013.

Since then, the company grew to become a component of both the S&P 500 and NASDAQ 100 while becoming one of Fortune 500’s highest-revenue corporations in the United States.

The company has a strong online presence and spends much of its advertising budget on content marketing. For example, it publishes BizTech magazine, which provides in-depth technical analysis of how integrated technologies help businesses outpace the competition.

In doing so, the company grew to be one of the biggest technology providers. While it still sells modern devices, like smartphones, tablets, and computers, it also serves datacenters and other high-tech enterprise segments.

Because it has a broad range of equipment at affordable prices, CDW grew its revenue and customer base during the coronavirus pandemic. Widespread city lockdowns made virtual work “du jour”, and companies large and small spent heavily on upgrading cloud infrastructure to support virtual work.

But as worldwide shutdowns drag on, investors may be seeking recovery stocks, and CDW could lose some of its shine. Here’s what the numbers say.

Is CDW Stock A Buy?

CDW share price has a fair market value of $141 per share based on a discounted cash flow analysis forecast. 

Of the 8 research analysts covering the stock, 5 rate the company a Buy and 3 a Hold.

From a share price perspective, the company didn’t quite recover to “pre-pandemic” trading price levels by the end of 2020. It doesn’t have the sexy story of Tesla or the brand awareness of Apple to give it a bump.

Still, it outperformed analyst expectations in its earnings reports through 2020. In the third quarter, for example, the consensus estimate was $1.48 earnings per share (EPS). The company reported $1.83, easily surpassing expectations.

It reported $4.76 billion in revenues, despite a 13.2 percent year-over-year decline in its Corporate segment. CDW also dropped 12.7 percent in its Small Business sales, which came in at $337 million for the quarter.

But it more than made up for that with a 33.6 percent increase in Government sales, 9.2 percent in public, and 6.8 percent in Education customers. This gave it a gross profit of $826 million, a 1.1 percent increase over the prior year’s quarter.

CDW has $1.25 billion in cash and cash equivalents on hand, with $738.4 million cash flow. This helped it pay down debt, although it still holds $3.92 billion of long-term debt on its books.

This brings up the question of what could derail CDW share price? 

Will CDW Stock Fall?

CDW saw an increase in sales; management reported $18.03 billion in the 12 months prior to global lockdowns.

This put it well above competitors like ePlus, PC Connection, and Insight Enterprises. However, the fallout of global shutdowns hit the company hard, and it lost $1 billion off its market cap by year end.

While it grew sales to work-from-home entrepreneurs, schools, and governments, corporations turned a blind eye to the company’s offerings.

It arguably needs to focus more money on advertising to reach corporate decision makers. Otherwise, it could find itself with a lot of extra inventory it can’t sell. Although it mostly dropships directly from vendors and distributors, which created another issue.

Because it doesn’t manufacture itself, it’s dependent on third parties for its supplies. That became an issue last year when technologies like Nvidia’s latest graphics cards, Logitech webcams, and other pandemic-centric technologies were impossible to find.

Its success hinges on continued partnerships with vendors, and it has to outperform the competition to maintain those. And it’s competing with very large enterprises in its growth trajectory.

CDW Operates In A Fragmented Market

CDW’s competitors run deeper than the companies listed above. It also competes with Amazon (AMZN), Best Buy (BBY), and NewEgg in the consumer technology segments. It’s competing with office stores like Staples for small businesses and educational consumers too.

And by entering the consulting business, it’s competing with IBM, Accenture, and the likes.

Thankfully, it has sticky long-term customers that can keep a relatively stable and predictable income. Governments and schools are notoriously gun shy about pulling the trigger on a vendor change, and its IT services keep CDW at the top of their minds.

But the pandemic has proven, almost any business’s luck can change in an instant.

Is CDW Stock A Buy? The Bottom Line

CDW is a technology reseller that serves every market, but its bread and butter is in corporate customers. It provides a full range of hardware and software solutions, along with trained engineers who act as consultants through the full IT lifecycle.

The fallout from the pandemic pushed businesses online, and that meant a lot of technology spending. CDW grew its government, public, and education niches but dropped the ball on healthcare and corporations. It needs to regain its shine with those customers to survive and grow over the next decade.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.