CDW (CDW)

IT solutions provider CDW (NASDAQGS:CDW) met Wall Streets revenue expectations in Q3 CY2025, with sales up 4% year on year to $5.74 billion. Its non-GAAP profit of $2.71 per share was 3.4% above analysts’ consensus estimates.

Company Overview

Serving as a crucial bridge between technology manufacturers and end users since 1984, CDW (NASDAQ:CDW) is a multi-brand provider of information technology solutions that helps businesses and public sector organizations select, implement, and manage hardware, software, and IT services.

IT Distribution & Solutions will be buoyed by the increasing complexity of IT ecosystems, rising cloud adoption, and demand for cybersecurity solutions. Enterprises are less likely than ever to embark on these complicated journeys solo, and companies in the sector boast expertise and scale in these areas. However, cloud migration also means less need for hardware, which could dent demand for large portions of the product portfolio and hurt margins. Additionally, planning for potentially supply chain disruptions is ongoing, as the COVID-19 pandemic showed how damaging a pause in global trade could be in areas like semiconductor procurement.

CDW's competitors include other IT solutions providers and value-added resellers such as Insight Enterprises (NASDAQ:NSIT), Connection (NASDAQ:CNXN), and SHI International, as well as direct sales from major technology manufacturers and cloud service providers like Dell Technologies (NYSE:DELL) and Microsoft (NASDAQ:MSFT).

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years.

With $22.1 billion in revenue over the past 12 months, CDW is a behemoth in the business services sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices. However, its scale is a double-edged sword because it’s harder to find incremental growth when you’ve penetrated most of the market. To expand meaningfully, CDW likely needs to tweak its prices, innovate with new offerings, or enter new markets.

As you can see below, CDW grew its sales at a mediocre 4.1% compounded annual growth rate over the last five years. This shows it couldn’t generate demand in any major way and is a tough starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. CDW’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

This quarter, CDW grew its revenue by 4% year on year, and its $5.74 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 2.1% over the next 12 months, similar to its two-year rate. Although this projection suggests its newer products and services will spur better top-line performance, it is still below average for the sector.

CDW’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 7.4% over the last five years. This profitability was paltry for a business services business and caused by its suboptimal cost structure.

Analyzing the trend in its profitability, CDW’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, CDW generated an operating margin profit margin of 7.7%, down 1 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

CDW’s EPS grew at a solid 9.4% compounded annual growth rate over the last five years, higher than its 4.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For CDW, EPS didn’t budge over the last two years, a regression from its five-year trend. We hope it can revert to earnings growth in the coming years.

In Q3, CDW reported adjusted EPS of $2.71, up from $2.63 in the same quarter last year. This print beat analysts’ estimates by 3.4%. Over the next 12 months, Wall Street expects CDW’s full-year EPS of $9.94 to grow 2.7%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

CDW has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 5%, subpar for a business services business.

Taking a step back, an encouraging sign is that CDW’s margin expanded by 1.2 percentage points during that time. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality.

CDW’s free cash flow clocked in at $298.5 million in Q3, equivalent to a 5.2% margin. This cash profitability was in line with the comparable period last year and its five-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although CDW hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked. Its five-year average ROIC was 18.1%, higher than most business services businesses.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, CDW’s ROIC averaged 1.2 percentage point decreases each year. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

CDW reported $452.9 million of cash and $5.63 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.18 billion of EBITDA over the last 12 months, we view CDW’s 2.4× net-debt-to-EBITDA ratio as safe. We also see its $225.4 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see CDW beat analysts’ EPS expectations this quarter despite in line revenue. Zooming out, we think this was a decent quarter. The stock remained flat at $155 immediately after reporting.

Updated: December 4, 2025 at 10:47 PM EST

Before investing in or passing on CDW, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

CDW isn’t a terrible business, but it doesn’t pass our bar. To begin with, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its scale makes it a trusted partner with negotiating leverage, the downside is its projected EPS for the next year is lacking. On top of that, its operating margins are low compared to other business services companies.

CDW’s P/E ratio based on the next 12 months is 14.1x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $182 on the company (compared to the current share price of $144.48).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.