It has been about a month since the last earnings report for CDW (CDW Quick QuoteCDW - Free Report) . Shares have lost about 7.2% 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 the most recent earnings report in order to get a better handle on the important drivers.

CDW Corporation Q4 Earnings Top Estimates, Revenues Up Y/Y

CDW Corporation reported healthy fourth-quarter 2021 results wherein both the bottom line and top line surpassed their respective Zacks Consensus Estimate.

The company’s fourth-quarter non-GAAP earnings improved 14% year over year to $2.08 per share and beat the Zacks Consensus Estimate by 9.5%.

This year-over-year increase in the bottom line was primarily driven by higher revenues. The effective tax rate in the quarter was 25.1%, up from 19.2% in the year-ago quarter.

GAAP net income came in at $215 million compared with $238 million in the prior-year quarter. Non-GAAP net income totaled $285 million compared with $264 million in the fourth quarter of 2020, an increase of 8.2%. In 2021, GAAP net income was $989 million compared with $789 million in 2020. Non-GAAP net income in the year was $1,119 million, up from $954 million in 2020.

The company’s revenues increased 11.7% year over year to $5.54 billion. Quarterly revenues also surpassed the consensus mark of $5.21 billion. In 2021, total revenues came in at $20.82 billion compared with $18.47 billion in 2020.

On a constant currency average daily sales basis, net sales improved 9.6%. Currency impact on top-line growth was primarily driven by the favorable currency exchange rates of the Canadian dollar and the British pound to the U.S. dollar.

A rebound in commercial customer spending resulted in an excellent performance, especially in Corporate, Small Business and CDW Canada. The improvement in the Healthcare channel, resilient business model and solid product and solutions portfolio were key positives in the quarter.

Quarterly Details

Net sales of CDW’s Corporate segment amounted to $2.32 billion, reflecting a 35.3% jump on a year-over-year basis.

The Small Business segment’s net sales of $487.4 million grew 33% year over year.

Coming to the Public segment, net sales of $2.03 billion declined 11.7% from the year-earlier quarter. Revenues from Healthcare customers were up 21.8%, while the same from Government and Education plunged 33.9% and 7.5%, respectively.

Net sales in Other (Canadian and U.K. operations) improved 21.4% to $698.7 million.

CDW’s gross profit of $975.6 million climbed 10.8% on a year-over-year basis. However, the gross margin contracted 20 basis points (bps) to 17.6%, mainly on a lower product margin and overlapping higher margin configuration services in the prior year. It was partially offset by a higher mix of net service contract revenues, primarily Software as a Service, improved net sales of professional services and the impact of Sirius' gross profit margin.

The non-GAAP operating income grew 12.8% year over year to $424.5 million. Additionally, the non-GAAP operating margin advanced 10 bps to 7.7%.

Selling and administrative expenses rose 16% year over year to $636.3 million, primarily due to higher sales payroll expenses, increased coworker count, higher performance-based compensation and higher acquisition and integration costs.

Net interest expenses rose 16.9% year over year to $43.4 million. The increase was mainly driven by additional interest expense from the $2.5 billion aggregate principal amount of senior notes issued on Dec 1, 2021, which were leveraged in funding the acquisition of Sirius.

Balance Sheet and Cash Flow

As of Dec 31, 2021, CDW had $258.1 million of cash and cash equivalents compared with $1.41 billion in 2020.

The multi-brand IT solutions provider has a long-term debt of $6.76 billion, higher than $3.86 billion at the end of the year-earlier quarter.

In 2021, CDW generated $784.6 million of cash flow from operational activities compared with $1.31 billion in 2020.

Separately, the company announced that its board of directors has authorized a quarterly cash dividend of 50 cents per share to be payable on Mar 10 to shareholders of record date as of Feb 25. The newly-approved dividend rate is 25% higher than the prior-year period’s dividend rate.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

The consensus estimate has shifted 6.25% due to these changes.

VGM Scores

At this time, CDW has an average Growth Score of C, though it is lagging a bit 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 second quintile for this investment strategy.

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

Outlook

Estimates have been broadly 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.