CDW Market Research & Analysis Report
Updated Aug 17, 2014

Growth and Balance Sheet

The company reported net income of $86.6 million, or 50 cents diluted earnings per share, for the second quarter of 2014 ending June 30. That's up from a net income of $46.7 million, or 32 cents diluted earnings per share for the same quarter last year. Revenues for the second quarter were $3,106 million, up from $2,779 million for the same quarter last year. All of company segments reported an increase in revenue in comparison to the same quarter last year. Corporate Medium/Large segment revenue was up 6.6% to $1,395.4 million; Corporate Small Business segment revenue was up 14% to $260.8 million; Public Government revenue was up 5.9% to $313.1 million; Public Education segment revenue was up 25.3% to $527 million; and Public Healthcare segment revenue was up 17.8% to $431.5 million. Gross profit margin for the quarter was 16.00% in comparison to 16.25% for the same quarter last year, primarily due to increased sales of lower margined products. Operating profit margin for the second quarter of 2014 was 6.06%, in comparison to 5.53% for the same quarter last year. Cash and cash equivalents as of June 30, 2014 totaled $227.6 million, up from $188.1 million as of 31 December, 2013. Cash flow provided by operating activities for the six months of 2014 was $175.9 million, in comparison to $207.1 million for the same period last year. CDW forecasted third quarter of 2014 EPS are in the range of 58 cents to 63 cents, compared to actual loss per share of 4 cents for the third quarter of 2013. The financial strength indicators of the company are lagging behind the industry averages. Company’s current ratio of 1.58 is at worse levels than the industry average of 2.79. The quick ratio of 1.29 is also lagging behind to the industry average of 2.63. The interest coverage ratio of 1.83 is at worse levels than the industry average of 52.19. In terms of efficiency, the asset turnover ratio of 1.88 is better than the industry average of 1.16; the receivables turnover ratio of 7.77 is also at healthier levels than the industry average of 4.96; and the ROE of 37.07% is trailing the industry average of 40.5%. 

Valuation

CDW PE stands at 27.66 above the industry average of 17.04, and above the stock market average represented by the S&P 500 average of 18.47. The company is currently trading above the maximum P/E ratio of 15x, and over the last five years, the company’s shares have traded in the range of 18.37x to 33.60x trailing 12-month earnings. CDW's current Price/Sales of 0.46 is below the average of its industry of 0.81. CDW’s head to head comparison to its main competitors shows that the company has average gross margin, but one that is below the industry average. The achieved operating margin is above those of NSIT and PCCC, but far below AAPL, and in line with the industry average operating margin. The quarterly revenue growth of the company is second best only to PCCC from the selected peers, and it is above the industry average. CDW trades at the highest P/E ratio from the selected peers, and at second highest P/S ratio of the selected competitors. CDW’s twelve trailing months EBITDA is $756.10 million, above the industry average EBITDA of $26.73 million. The stock is currently trading below its intrinsic value of $37.20, this suggests that the stock is currently undervalued at these levels. The beta of 0.59 implies lower volatility of the stock with respect to the S&P 500. The current quarter earnings in comparison to the same quarter last year have increased by 56.25%. CDW’s Total Debt/Equity of 370.03 is above the required maximum, and it is above the industry average of 50.2. CDW’s current price levels are below the maximum level, 4.84% below the 52 week high of $32.62, and the technical analysis give a neutral to positive view of the stock. The majority of the analyst ratings are outperform. CDW has a dividend payout ratio of 11% and a trailing annual dividend yield of 0.40%.

About CDW

CDW Corporation (CDW) is a provider of integrated information technology (IT) solutions in the United States and Canada. CDW's range of offerings range from discrete hardware and software products to integrated IT solutions, such as mobility, security, data center optimization, cloud computing, virtualization and collaboration. The Company has two segments: Corporate, which consists of primarily of private sector business customers, and Public, which consists of government agencies and education and healthcare institutions. CDW also has two other operating segments, CDW Advanced Services and Canada (combined together as Other). The Company is a sales channel partner for many original equipment manufacturers (OEMs) and software publishers (collectively, its vendor partners), whose products it sells or include in the solutions CDW offers. The Company helps its customer base of more than 250,000 small, medium and large business, government, education and healthcare customers.

Competitor Comparison

CDW Corporation N.V.

Highlights

CDW Corporation provides information technology (IT) solutions in the United States and Canada. The stock closed yesterday’s trading session at $31.04. In the past year, the stock has hit a 52-week low of $20.50 and 52-week high of $32.62. The intrinsic value of the stock is above the current price. CDW has a market cap of $5.28 billion and is part of the Technology sector.

• Broad selection of products and multi-branded IT solutions
• Large and established customer channels
• Established market position

• Vendor concentration could impact competitive position
• Dependence on the US and Canadian markets  

CDW Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. CDW's 52 week high is $32.62, current price is $31.04, is 4.84% below the 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature.  The company has a P/E ratio of 27.66 the average industry P/E ratio is 17.04 and is above the S&P 500 P/E ratio of 18.47.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders’ ownership of CDW stock is not available.

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

CDW is trading in the range of $30.30 - $31.70 in the past 30 days. The stock has been showing support around the level of $28 and resistance in the $32 range. The stock is trading close to the 50-Day Moving Average and above the 200-Day Moving Average. The RSI(14) is 47.64. After trading in a range from August 2013 to February 2014, the stock went past the resistance at around $25 and rose to the all-time high of around $32 by early July, marked with a hammer candle. Currently the stock is a consolidation period, but there is no further indication that the bulls are over with the stock. Our indicators give a neutral to positive view of CDW.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investor’s sentiment for the stock.

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com is 3 Buy, 4 Outperform, and 3 Hold.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. CDW went public last year, therefore no information is available.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry. CDW’s Total Debt/Equity of 370.03 is above the required maximum, and it is above the industry average of 50.2.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. CDW’s EPS growth for this quarter relative to the same quarter a year earlier is 56.25%, above our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. CDW’s annual earnings growth rate over the past five years is not meaningful.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.