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Why Is CDW (CDW) Down 17.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for CDW (CDW - Free Report) . Shares have lost about 17.1% 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 Q4 Earnings Surpass Estimates

CDW fourth-quarter 2019 non-GAAP earnings per share rose 18.4% year over year to $1.57 and also beat the Zacks Consensus Estimate of $1.47.

Further, revenues of $4.54 billion in the reported quarter marked a year-over-year rise of 11.3% and also topped the Zacks Consensus Estimate of $4.395 billion. Moreover, revenues were up 11.3% at constant currency (cc).

The company’s balanced portfolio of customer end markets and its broad product and solutions pipeline are key drivers.

Quarter in Detail

Net sales of CDW’s Corporate segment amounting to $1.965 billion registered nearly 7% growth on a year-over-year basis aided by balanced transactional and solutions growth.  Double-digit growth in servers and enterprise storage hardware was a tailwind.

Small Business segment’s net sales of $391 million increased 7.9% year over year, driven by client device strength.
 
Coming to Public segment, net sales of $1.593 billion climbed 12.6% from the year-earlier quarter. Moreover, revenues from Government and Healthcare customers were up 20.7% and 13.6%, respectively. Double-digit growth in client devices as well as enterprise storage hardware and software aided Healthcare. Infrastructure refresh and increasing focus on patient experience and clinical mobility boosted healthcare demand.

Sales to Education customers inched up 1.3% with low single-digit growth in higher education and flat K-12 results.

Net sales in Other (Canadian and UK operations) ascended 27.2% to $587 million.

CDW’s gross profit of $777.5 million increased 12.1% on a year-over-year basis. Also, gross margin expanded 10 basis points (bps) to 17.1% driven by product margin.

Non-GAAP operating income increased 14.3% year over year to $342.3 million. Non-GAAP operating margin of 7.5% improved 20 bps.

Balance Sheet and Cash Flow

CDW exited the reported quarter with cash and cash equivalents of $154 million compared with $166.9 million at the end of the sequential quarter.

The company has a long-term debt of $3.32 billion compared with $3.26 billion in the sequential quarter.

CDW generated $1.03 billion of cash flow from operational activities in 2019.

Guidance

CDW anticipates 2020 revenues to grow 200-300 bps more than the U.S. IT market.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

VGM Scores

At this time, CDW has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, 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

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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