CDW Corp (CDW, Financial) has experienced a daily gain of 5.34%, with an Earnings Per Share (EPS) of 7.98. This raises the question: Is CDW stock fairly valued? In this article, we delve into a comprehensive valuation analysis of CDW, providing you with valuable insights into the company's financial health and growth prospects.
Introduction to CDW Corp (CDW, Financial)
CDW Corp, a value-added reseller operating predominantly in the U.S. (95% of sales) and Canada (5%), offers an extensive product range, from notebooks to data center software. The company's revenue is primarily derived from midsize and large businesses, with the remaining from small businesses, government agencies, education institutions, and health-care organizations. As of August 2, 2023, CDW's stock price stands at $197.33, while the GF Value, an estimation of fair value, is $182.61.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. It's derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides a snapshot of the stock's fair trading value. If the stock price is significantly above the GF Value Line, it's overvalued, and its future return is likely to be poor. Conversely, if it's significantly below the GF Value Line, its future return will likely be higher.
CDW (CDW, Financial) appears to be fairly valued according to the GuruFocus Value calculation. At its current price of $197.33 per share and the market cap of $26.6 billion, CDW stock seems to be trading at its fair value. As CDW is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
These companies may deliver higher future returns at reduced risk.
Assessing CDW's Financial Strength
Before investing in a company, it's crucial to evaluate its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are useful indicators of a company's financial strength. CDW's cash-to-debt ratio of 0.05 is lower than 95.6% of companies in the Software industry, contributing to a modest financial strength rank of 5 out of 10.
Profitability and Growth of CDW
Profitable companies, especially those demonstrating consistent profitability over the long term, pose less investment risk. CDW has been profitable for the past 10 years. With a revenue of $22.9 billion over the past twelve months and an Earnings Per Share (EPS) of $7.98, CDW's operating margin of 7.44% ranks better than 64.62% of companies in the Software industry, indicating strong profitability.
Growth is a crucial factor in a company's valuation. CDW's 3-year average revenue growth rate is better than 60.38% of companies in the Software industry. CDW's 3-year average EBITDA growth rate of 16.4% ranks better than 61.91% of companies in the Software industry, indicating promising growth.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC) is another way to assess profitability. For the past 12 months, CDW's ROIC is 13.56, and its WACC is 8.23, indicating a healthy return on invested capital.
Conclusion
In conclusion, CDW Corp (CDW, Financial) stock seems to be fairly valued. The company exhibits modest financial strength yet strong profitability. Its growth ranks better than 61.91% of companies in the Software industry. For more detailed financial information about CDW, check out its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, consider checking out the GuruFocus High Quality Low Capex Screener.
