It has been about a month since the last earnings report for CDW (CDW Quick QuoteCDW - Free Report) . Shares have added about 1% in that time frame, underperforming the S&P 500.

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

CDW Surpasses Q3 Earnings & Revenue Estimates

CDW reported better-than-expected results for third-quarter 2020. The company’s third-quarter non-GAAP earnings per share of $1.83 comfortably surpassed the Zacks Consensus Estimate of $1.48. Moreover, the reported figure increased 8%, year over year, mainly on improved product margin, better product mix, lower interest expenses and reduction in effective tax rate.

The company’s quarterly revenues of $4.76 billion outpaced the consensus mark of $4.54 billion. However, the top-line figure fell 3.1% year over year on a reported basis and decreased 3.3% on constant currency. Weakness in corporate demand due to the pandemic-induced economic and business disruptions primarily hurt CDW’s sales during the reported quarter.

Quarter in Detail

Net sales of CDW’s Corporate segment, amounting to $1.66 billion, witnessed a 13.2% decline on a year-over-year basis.

The Small Business segment’s net sales of $337 million dropped 12.7% year over year.

Coming to the Public segment, net sales of $2.29 billion climbed 9.2% from the year-earlier quarter. Moreover, revenues from Government and Education customers were up 6.8% and 33.6%, respectively. However, sales to Healthcare customers slid 26.5%.

Net sales in Other (Canadian and UK operations) were down 8.2% to $466 million.

CDW’s gross profit of $826 million inched up 1.1% on a year-over-year basis. Gross margin expanded 80 basis points (bps) to 17.4% on solid product margin and lower cost of goods sold.

Non-GAAP operating income grew 1.5% year over year to $386 million. Additionally, non-GAAP operating margin advanced 30 bps to 8.1% chiefly on higher gross margin, partially offset by inflated operating expenses.

Net interest expenses declined 5.1% year on year to $40 million.

Non-GAAP effective tax rate for the September-end quarter was 23.3%, lower than the year-ago quarter’s 25.8%.

Balance Sheet and Cash Flow

CDW exited the July-September quarter with cash and cash equivalents of $1.25 billion compared with the $958 million witnessed at the end of the previous quarter.

The company has a long-term debt of $3.92 billion compared with the prior quarter’s $4.13 billion.

CDW generated $738.4 million of cash flow from operational activities in the first nine months of 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 10.32% due to these changes.

VGM Scores

At this time, CDW has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise CDW has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.