CDW Corp stock. : An excellent company at a fair price (NASDAQ: CDW)


Information technology is extremely important in the modern age. That said, it’s not something most companies specialize in. This means that instead of relying on solving IT problems in-house, many companies seek help from companies that specialize in this zone. One player in this space that deserves special attention is CDW Corporation (NASDAQ: CDW).

In recent years, this industry giant has been very successful in developing both its turnover and its results. In the long term, I fully suspect that the company will continue to create additional value for its shareholders. But right now, the stocks are a bit pricey compared to similar players, and they seem to be more or less fairly priced, at best, on an absolute basis. For this reason, I have decided to assign the company an “expectation”, reflecting my belief that its returns will more or less reflect broader market returns for the foreseeable future.

A computer game

As I mentioned before, CDW Corporation put the accent on provide IT solutions to its customers. These customers come from all walks of life, ranging from small to medium and even large enterprises. The company also serves government, educational institutions and the healthcare industry. Operations are largely concentrated around the US market. But the company is also present in the United Kingdom and Canada.

In total, the company offers a portfolio of solutions that includes more than 100,000 products and services from more than 1,000 different brands. These products can be delivered in physical form, virtual form, and even in cloud-based environments. The company has also described itself as a premier sales channel partner for OEMs, software vendors, cloud providers and other types of businesses.

The best way to really conceptualize the company is to imagine it as a distributor and advisor for the technology solutions it provides. On the hardware side, examples include laptops and mobile devices, network communications, desktop computers, video monitors, enterprise and data storage products, and more. On the software side, the company provides application suites, security, virtualization, operating systems, and other types of offerings.

And on the service side, the company focuses on consulting business, as well as design, software development, implementation, managed services, and even provides warranties. Ultimately, the company believes that one of its key selling points is that it serves as a solution provider that helps integrate the technology products and services that its customers buy, instead of the customer considering the technology which he acquires as a discrete technology. products and services.

In terms of overall sales concentration, a large portion of the company’s revenue comes from the laptops and mobile devices category. 32% of all its revenue came from this category in 2021. Next is the “other hardware” category which includes all other miscellaneous hardware products that were not otherwise classified in a different category. These accounted for 20.9% of turnover. Meanwhile, software came third with 13.5%.

It would also be helpful for us to look at the company’s operations through the lens of the segments it has. The first of these is the Corporate segment, which primarily includes private sector corporate clients with more than 250 employees in the US market that the company serves. Last year, these customers accounted for 39.3% of the company’s revenue and 43.9% of its profits. Then we had the small business segment. This includes all of the same types of business as the Corporate segment, except it focuses on smaller employers. 9% of its revenue came from this segment last year, while 10.6% of its profit was.

We also have the Public segment, which involves all government agencies, educational and healthcare institutions that the company serves. 39.3% of its turnover and 38.2% of its profits came from it last year. And finally, we have the Others segment, which focuses on the company’s operations in the UK and Canada. 12.4% of its turnover and 7.3% of its profits came from it last year.

Historical financial data

Author – SEC EDGAR Data

Over the past few years, the management team at CDW Corporation has done a great job increasing the company’s revenues and results. Between 2017 and 2021, sales increased year over year, from $14.83 billion to $20.82 billion. This growth continued in fiscal 2022, with revenue jumping 21.1% from $9.98 billion to $12.10 billion in the fiscal year. first semester. The company’s greatest strength in 2022 came from the Corporate segment, with sales jumping 39.6% year-over-year. This, in turn, was driven in part by the company’s acquisition of Sirius. However, this is also driven by strong customer demand for digital transformation and a continued focus on a hybrid working model.

Historical financial data

Author – SEC EDGAR Data

As revenue grew, profitability followed. Net income fell from $523.1 million in 2017 to $988.6 million last year. Cash flow from operations also generally increased, from $777.7 million in 2017 to $1.31 billion in 2020. But then, in 2021, cash flow dropped to just $784.6 million. of dollars. Even if we correct for changes in working capital, it would have gone down a bit from $1.31 billion to $1.22 billion.

Meanwhile, the company’s EBITDA has also vastly improved over the years, from $1.13 billion in 2017 to $1.66 billion last year. As has been the case with revenue, the company’s profitability has continued to increase this year. Net income of $529.5 million topped the $506.7 million reported in the company’s first half of fiscal 2021. Cash flow from operations fell from $344.9 million to $761.1 million, while the adjusted reading for that fell from $594.8 million to $720.8 million.

And finally, we have EBITDA, the metric dropping from $787.9 million in the first half of 2021 to $979.6 million in the same period this year. It must be said that the company has made good use of its strong and growing cash flow over the years. Last year alone, for example, management brought in $1.5 billion worth of stock. Going forward, I expect this trend to continue.

With respect to FY2022 as a whole, management did not provide very helpful guidance. Perhaps the most important thing they said was that the company’s non-GAAP earnings per share are expected to climb at a pace that puts it in its mid-teens. If we take that literally to imply 15%, and disregard additional share buybacks, then we should be anticipating net profit this year of around $1.10 billion. Applying this same growth to other profitability metrics would result in adjusted operating cash flow of $1.35 billion and EBITDA of approximately $1.84 billion.

Trading multiples

Author – SEC EDGAR Data

If we use these estimates, the shares of the company still seem a bit high. The futures price on the earnings multiple, for example, should be at 23.3. That’s down from the 25.8 reading we get using 2021 results. EBITDA should increase from 18.9 to 17.1. To put that into perspective, I compared the company to five similar companies.

Using 2021 numbers, these companies are trading at a price/earnings multiple between 5.6 and 18. And when it comes to the EV/EBITDA approach, the range is between 4.9 and 10.4. In both cases, CDW Corporation was the most expensive of the bunch. And when it comes to the price/operating cash flow approach, the range was 9.9 to 45.3. In this scenario, two of the five companies are cheaper than our prospect.

Company Prizes / Earnings Price / Operating Cash EV / EBITDA
CDW Corporation 25.8 21.0 18.9
TD SYNNEX Corporation (SNX) 18.0 45.3 10.4
Electronic Arrow (ARW) 5.6 17.9 4.9
Avnet (AVT) 6.5 9.9 5.5
Business Insight (NSIT) 13.5 42.0 10.2
ePlus (PLUS) 13.7 N / A 9.2


All things considered, CDW Corporation appears to be a solid company with a bright future. Between organic growth and acquisitions, the company has continued its expansion and its profitability looks solid. Management is actively buying back stocks and operating in a space that should only see increased demand in the long term. That said, the shares look a little high, even when compared to similar companies. So, because of that, I decided to put the business on hold for the time being.

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