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 drivers.
CDW First-Quarter 2020 Result
CDW reported solid results for first-quarter 2020, wherein both top and bottom lines surpassed the Zacks Consensus Estimate and marked significant year-over-year improvements.
The company’s first-quarter non-GAAP earnings per share increased 11% year over year to $1.38, mainly on higher revenues, partially offset by inflated selling and administrative (S&A) expenses and effective tax rate. Quarterly earnings also surpassed the Zacks Consensus Estimate by a couple of cents.
The company’s quarterly revenues grew 10.9% year over year to $4.39 billion and came in line with the Zacks Consensus Estimate. Moreover, revenues were up 9.4% at constant currency (cc). The company’s balanced portfolio of customer end markets and its broad product and solutions pipeline were key drivers.
Quarter in Detail
Net sales of CDW’s Corporate segment amounting to $1.91 billion registered 8.4% growth on a year-over-year basis.
The Small Business segment’s net sales of $391 million increased 8.4% year over year.
Coming to the Public segment, net sales of $1.53 billion climbed 12.8% from the year-earlier quarter. Moreover, revenues from Government and Healthcare customers were up 14.7% and 7.1%, respectively. Sales to Education customers jumped 17.1%.
Net sales in Other (Canadian and UK operations) were up 3.2% to $561 million.
CDW’s gross profit of $757 million increased 12.6% on a year-over-year basis. Also, gross margin expanded 20 basis points (bps) to 17.2% driven by product margin.
Non-GAAP operating income increased 5.8% year over year to $304 million. However, non-GAAP operating margin contracted 40 bps to 6.9% mainly due to elevated S&A expenses, which flared up 15.2% year over year to $511 million. As a percentage of revenues, S&A expenses expanded 40 bps to 11.6%.
Effective tax rate for the first quarter was 20.7%, marginally higher than the year-ago quarter level of 20.2%.
Balance Sheet and Cash Flow
CDW exited the reported quarter with cash and cash equivalents of $214 million compared with the $154 million witnessed at the end of the sequential quarter.
The company has a long-term debt of $3.47 billion compared with the prior quarter’s $3.32 billion.
CDW generated $223 million of cash flow from operational activities in the January-March quarter.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
At this time, CDW has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. 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.
CDW has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.