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Why You Should Dump CDW Corp (CDW) from Your Portfolio
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If you still have shares of CDW Corporation (CDW - Free Report) in your portfolio, it is time you dump them as chances of favorable returns in the near term are bleak.
This is because the stock registered a negative return of 4.4% in the last one month, underperforming the Zacks categorized Computers - IT Services industry’s loss of just 2.9%.
Let’s delve deeper and find out what is taking this Zacks Rank #5 (Strong Sell) company down.
Why CDW Should be Avoided
CDW specializes in providing information technology products and services to business, government, education and healthcare customers, primarily in the U.S. and Canada.
The company currently has a trailing 12-month P/E ratio of 17.47. To some extent, this level compares unfavorably with what the industry witnessed over the last one year. The ratio is higher than the average level of 15.55 and is towards its higher end of the valuation range over this period. Hence, valuation looks slightly stretched from a P/E perspective.
The company also reported mixed fourth-quarter 2016 results wherein the top line missed the Zacks Consensus Estimate but the bottom line surpassed the same.
Furthermore, CDW has a highly leveraged balance sheet. The company had a total debt position (long and short) of $3.234 billion at the end of fourth-quarter fiscal 2016 (ended Dec 31, 2016). The company exited fiscal 2016 with cash and cash equivalents of $263.7 million, compared with $37.6 million in fiscal 2015. Net debt (i.e debt minus cash and cash equivalents) for fiscal 2016 came in at $2.97 billion. Since CDW has net debt available on its balance sheet, it will be difficult for the company to pursue strategic acquisitions, investment in growth initiatives and distribution to shareholders. Thus, it had to constantly generate adequate amount of operating cash flow to service its debt.
Adding to the woes, the stock carries a VGM Score of “C.” Notably, the Zacks VGM Style Score rates each stock on their combined weighted styles, helping to identify those with the most attractive value, best growth, and most promising momentum, across the board. Stocks with a VGM Style Score of ‘A’ or ‘B’ and a Zacks Rank of #1 (Strong Buy) or 2 (Buy), have even better returns, on average, than the individual components, as it considers three times as many items that are correlated to future stocks returns.
Also, competition from Insight Enterprises Inc. (NSIT - Free Report) and PC Connection, Inc. (CNXN - Free Report) , and pricing pressure remain headwinds.
Bottom Line
We expect the aforementioned factors to hurt the company’s near-term profitability. Hence, we recommend investors to stay away from CDW shares until the Zacks Rank, VGM score and price improve.
Seagate has a long-term expected earnings growth rate of 8.17%.
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Why You Should Dump CDW Corp (CDW) from Your Portfolio
If you still have shares of CDW Corporation (CDW - Free Report) in your portfolio, it is time you dump them as chances of favorable returns in the near term are bleak.
This is because the stock registered a negative return of 4.4% in the last one month, underperforming the Zacks categorized Computers - IT Services industry’s loss of just 2.9%.
Let’s delve deeper and find out what is taking this Zacks Rank #5 (Strong Sell) company down.
Why CDW Should be Avoided
CDW specializes in providing information technology products and services to business, government, education and healthcare customers, primarily in the U.S. and Canada.
The company currently has a trailing 12-month P/E ratio of 17.47. To some extent, this level compares unfavorably with what the industry witnessed over the last one year. The ratio is higher than the average level of 15.55 and is towards its higher end of the valuation range over this period. Hence, valuation looks slightly stretched from a P/E perspective.
The company also reported mixed fourth-quarter 2016 results wherein the top line missed the Zacks Consensus Estimate but the bottom line surpassed the same.
Furthermore, CDW has a highly leveraged balance sheet. The company had a total debt position (long and short) of $3.234 billion at the end of fourth-quarter fiscal 2016 (ended Dec 31, 2016). The company exited fiscal 2016 with cash and cash equivalents of $263.7 million, compared with $37.6 million in fiscal 2015. Net debt (i.e debt minus cash and cash equivalents) for fiscal 2016 came in at $2.97 billion. Since CDW has net debt available on its balance sheet, it will be difficult for the company to pursue strategic acquisitions, investment in growth initiatives and distribution to shareholders. Thus, it had to constantly generate adequate amount of operating cash flow to service its debt.
Adding to the woes, the stock carries a VGM Score of “C.” Notably, the Zacks VGM Style Score rates each stock on their combined weighted styles, helping to identify those with the most attractive value, best growth, and most promising momentum, across the board. Stocks with a VGM Style Score of ‘A’ or ‘B’ and a Zacks Rank of #1 (Strong Buy) or 2 (Buy), have even better returns, on average, than the individual components, as it considers three times as many items that are correlated to future stocks returns.
Also, competition from Insight Enterprises Inc. (NSIT - Free Report) and PC Connection, Inc. (CNXN - Free Report) , and pricing pressure remain headwinds.
Bottom Line
We expect the aforementioned factors to hurt the company’s near-term profitability. Hence, we recommend investors to stay away from CDW shares until the Zacks Rank, VGM score and price improve.
Stocks to Consider
A better-ranked stock in the technology sector is Seagate Technology plc (STX - Free Report) , carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Seagate has a long-term expected earnings growth rate of 8.17%.
5 Trades Could Profit ""Big-League"" from Trump Policies
If the stocks above spark your interest, wait until you look into companies primed to make substantial gains from Washington's changing course.
Today Zacks reveals 5 tickers that could benefit from new trends like streamlined drug approvals, tariffs, lower taxes, higher interest rates, and spending surges in defense and infrastructure. See these buy recommendations now >>