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Here's Why You Should Retain CDW Stock in Your Portfolio

Zacks Equity Research

CDW Corporation CDW was been one of the outstanding performers in the IT Services space last year. The stock has skyrocketed 84.7%, outperforming the industry’s growth of 26.8% and the S&P 500 Index’s 26.3% rally in the past year.

This upsurge can be attributed to the company’s growth across all U.S. channels and international operations. Notably, its customer end markets as well as expanding product and technology portfolio are key drivers.

Notably, CDW boasts an impressive earnings surprise history, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 9.07%.

The Zacks Consensus Estimate for 2019 and 2020 earnings has been stable at $6.01 and $6.55, respectively, over the past 60 days.

With an expected long-term earnings per share growth rate of 13.1% and a market cap of $20.52 billion, the stock seems a bet to reckon with for investors, who want to keep it in their portfolio for reaping long-term gains.

One-Year Price Performance

What’s Boosting the Stock?

CDW is benefiting from growth across all the end markets, which include corporate, small business, healthcare, government and education. Notably, each of these channels generates annual sales of more than $1 billion.

Increasing demand for its solid product and services portfolio addressing customer requirements across the IT landscape is a key driver. To this end, the company has been gaining traction immensely from its expanding partner ecosystem, which comprises players like Apple, Adobe, Google, HP, IBM and Microsoft et al.

CDW’s strategy to supplement organic growth with acquisitions is also helping the company significantly. Its latest buyouts of Aptris and Scalar Decisions have been instrumental in enhancing its capabilities to solve customers’ business problems.

Notably, the company anticipates 2019 revenues to rise 200-300 bps (earlier 400-475 bps) more than the U.S. IT market’s growth estimate of 3%. The integration of Scalar is envisioned to contribute 100 bps additionally.

Downsides

However, mounting debt burden and intensifying competition from key tech players are persistent headwinds.

Adverse foreign currency fluctuations and macroeconomic perils are other key concerns.

Also, with the passage of Window’s 10 replacement cycle in January 2020, robust growth in client devices over the last couple of years is likely to induce a tough year-over-year comparison in fiscal 2020.

Bottom Line

With CDW’s balanced portfolio of customer end markets, a solid product suite and its 3-part growth strategy, the company looks well-poised to lead the market.

Further, recovery in IT spending during 2020 makes us optimistic about the stock’s growth prospects. Per the latest Gartner report, worldwide IT spending will reach $3.88 trillion in the current year, indicating a 3.7% increase from the year-ago estimated figure. Notably, IT Services segment spending is predicted to be up 5.5% and touch $1.1 trillion this year.

Zacks Rank and Stocks to Consider

Currently, CDW has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader technology sector are Baidu BIDU, Marchex MCHX and Synopsys SNPS, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Baidu, Marchex and Synopsys is currently pegged at 2.3%, 15% and 12.8%, respectively.

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