CDW (CDW)

IT solutions provider CDW (NASDAQGS:CDW) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 6.7% year on year to $5.20 billion. Its non-GAAP profit of $2.15 per share was 9.5% 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).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $21.33 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 challenging to maintain high growth rates when you’ve already captured a large portion of the addressable market. For CDW to boost its sales, it likely needs to adjust its prices, launch new offerings, or lean into foreign markets.

As you can see below, CDW grew its sales at a sluggish 2.9% compounded annual growth rate over the last five years. This shows it failed to generate demand in any major way and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. CDW’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 3.5% annually.

This quarter, CDW reported year-on-year revenue growth of 6.7%, and its $5.20 billion of revenue exceeded Wall Street’s estimates by 5.3%.

Looking ahead, sell-side analysts expect revenue to grow 1.1% over the next 12 months. While this projection suggests its newer products and services will catalyze better top-line performance, it is still below average for the sector.

CDW was profitable over the last five years but held back by its large cost base. Its average operating margin of 7.3% was weak for a business services business.

On the plus side, CDW’s operating margin rose by 1.3 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, CDW generated an operating profit margin of 7%, in line with the same quarter last year. This 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 9.3% compounded annual growth rate over the last five years, higher than its 2.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into CDW’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, CDW’s operating margin was flat this quarter but expanded by 1.3 percentage points over the last five years. On top of that, its share count shrank by 7.9%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q1, CDW reported EPS at $2.15, up from $1.92 in the same quarter last year. This print beat analysts’ estimates by 9.5%. Over the next 12 months, Wall Street expects CDW’s full-year EPS of $9.75 to stay about the same.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

CDW has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 5.3% over the last five years, slightly better than the broader business services sector.

Taking a step back, we can see that CDW’s margin dropped by 1.9 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

CDW’s free cash flow clocked in at $260.3 million in Q1, equivalent to a 5% margin. The company’s cash profitability regressed as it was 2.5 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

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 because of its poor top-line performance, it historically found a few growth initiatives that worked. Its five-year average ROIC was 18.2%, 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. Unfortunately, CDW’s ROIC averaged 1.3 percentage point decreases over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

CDW reported $471.4 million of cash and $5.85 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 $2.20 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 $220.3 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.

We were impressed by how significantly CDW blew past analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this was a solid print. The stock remained flat at $163.93 immediately following the results.

Updated: May 22, 2025 at 11:55 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in CDW.

CDW falls short of our quality standards. To begin with, its revenue growth was uninspiring 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 cash profitability fell over the last five years.

CDW’s P/E ratio based on the next 12 months is 18.8x. This valuation tells us a lot of optimism is priced in - we think there are better investment opportunities out there.

Wall Street analysts have a consensus one-year price target of $209.25 on the company (compared to the current share price of $183).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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