CDW (CDW) Down 2.3% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for CDW (CDW). Shares have lost about 2.3% 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 its most recent earnings report in order to get a better handle on the important drivers.

CDW reported better-than-expected results for second-quarter 2020.

The company’s second-quarter non-GAAP earnings per share of $1.56 surpassed the Zacks Consensus Estimate of $1.35. The reported figure, however, declined 2.6% year over year mainly on lower revenues.

The company’s quarterly revenues of $4.37 billion outpaced the consensus mark of $4.32 billion. However, the top-line figure fell 5.7% year over year on a reported basis and decreased 5.3% on constant currency. Weakness in corporate demand due to the pandemic-induced economic and business disruptions, along with unfavorable currency-exchange rates, mainly hurt CDW’s sales during the reported quarter.

Quarter in Detail

Net sales of CDW’s Corporate segment, amounting to $1.56 billion, registered a 17.3% decline on a year-over-year basis.

The Small Business segment’s net sales of $302 million dropped 19.9% year over year.

Coming to the Public segment, net sales of $2.02 billion climbed 9.9% from the year-earlier quarter. Moreover, revenues from Government and Education customers were up 24.4% and 13.3%, respectively. However, sales to Healthcare customers slid 12.8%.

Net sales in Other (Canadian and UK operations) were down 8.4% to $484 million.

CDW’s gross profit of $747 million dipped 3.4% on a year-over-year basis. Yet, gross margin expanded 40 basis points (bps) to 17.1% on solid product margin and lower cost of goods sold.

Non-GAAP operating income fell 5.6% year over year to $338 million. However, non-GAAP operating margin remained flat at 7.7%.

Effective tax rate for the June-end quarter was 22.9%, lower than the year-ago quarter’s 24.7%.

Balance Sheet and Cash Flow

CDW exited the April-June quarter with cash and cash equivalents of $958 million compared with the $214 million witnessed at the end of the previous quarter.

The company has a long-term debt of $4.13 billion compared with the prior quarter’s $3.56 billion.

CDW generated $515.8 million of cash flow from operational activities in the first-half of 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month. The consensus estimate has shifted 5.33% due to these changes.

VGM Scores

Currently, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

CDW has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

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