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CDW (CDW) Down 4.2% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for CDW (CDW). Shares have lost about 4.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is CDW due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

CDW Q1 Earnings & Revenues Top Estimates

CDW reported solid results for first-quarter 2021. The company’s first-quarter non-GAAP earnings per share of $1.74 surpassed the Zacks Consensus Estimate by 13%.

Moreover, the reported figure increased 26.2% year over year, mainly on higher revenues, improved product margin, better product mix, lower interest expenses and a reduction in the effective tax rate.

The company’s quarterly revenues of $4.84 billion outpaced the consensus mark of $4.61 billion. The top-line figure also increased 10.2% year over year on a reported basis and 10.9% at constant currency.

Quick recovery from the COVID-19 pandemic-led disruptions, especially in Small Business, CDW Canada and CDW U.K., combined with improvements in Corporate and Healthcare were key positives. Moreover, higher sales to education customers were a tailwind.

Quarter in Detail

Net sales of CDW’s Corporate segment, amounting to $1.8 billion, witnessed a 5.5% decline on a year-over-year basis.

Meanwhile, the Small Business segment’s net sales of $432.7 million grew 10.5% year over year.

Coming to the Public segment, net sales of $1.9 billion grew 26% from the year-earlier quarter. Moreover, revenues from Education customers were up a whopping 98.1%, more than offsetting the 9.2% and 3.8% declines in net sales to customers from Government and Healthcare, respectively.

Net sales in Other (Canadian and UK operations) improved 20.7% to $677.5 million.

CDW’s gross profit of $795.2 million climbed 5.1% on a year-over-year basis. Gross margin contracted 80 basis points (bps) to 16.4% due to a higher mix of lower-margin products, including notebooks, which overlapped higher-margin configuration services for the Census project last year. However, an increase in the mix of netted down revenues, primarily Software as a Service, was a breather for the gross margin.

Non-GAAP operating income grew 21% year on year to $367.7 million. Additionally, non-GAAP operating margin advanced 70 bps to 7.6% on the back of benefits from the company’s then variable cost structure.

Net interest expenses declined 6.1% year on year to $36 million.

Non-GAAP effective tax rate for the March-end quarter was 19.5%, lower than the year-ago quarter’s 20.7%.

Balance Sheet and Cash Flow

CDW exited the first quarter with cash and cash equivalents of $878.6 million compared with $1.41 billion witnessed at the end of December 2020.

The company has a long-term debt of $3.91 billion compared with the prior quarter’s $3.86 billion.

CDW generated $344.6 million of cash flow from operational activities and $101 million of free cash flow during the first quarter of 2021.

Separately, the company announced that its board of directors has authorized a quarterly cash dividend of 40 cents per share to be paid out on Jun 10 to all stockholders of record as of May 25.

Furthermore, the company noted that the dividend rate has increased more than nine-fold since its IPO in June 2013. Since then, the company has returned about $3.8 billion to shareholders through dividend payments and repurchases.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, CDW has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, CDW has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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