Key Takeaways

Strategic focus on advanced IT services and automation is positioning CDW as an indispensable enterprise partner, driving recurring revenue and supporting long-term growth.
Expansion in cloud, SaaS, and managed services, combined with disciplined expense management, is enhancing profit margins and sustaining stable, high-quality earnings.
CDW faces long-term risks from customers shifting to cloud, direct and as-a-service models, rising automation, and pricing pressures, threatening revenue growth and gross profit margins.

Catalysts

About CDW

Provides information technology (IT) solutions in the United States, the United Kingdom, and Canada.What are the underlying business or industry changes driving this perspective?

CDW's strategic investments in advanced cloud services, cybersecurity, artificial intelligence, and IT workflow automation are positioning the company as a mission-critical partner for enterprises navigating digital transformation, which strengthens recurring revenue streams and supports top-line growth over the long term.
The accelerating adoption of cloud infrastructure, SaaS, and managed IT services is expanding the company’s netted down revenue streams, which grew by 12% year over year, providing durable, higher-margin growth that directly benefits gross profit and enhances overall margin stability.
CDW’s deep expertise in managing complex technology deployments—like AI-enabled identity, security, and edge computing—makes it an essential partner for customers facing escalating IT complexity, driving demand for integration and lifecycle services and supporting sustained expansion in both services revenue and professional service fees.
Resilient growth in technology spending among public sector and healthcare verticals—driven by budgeted device refreshes, regulatory demand for security, and digital modernization—offers a foundation for stable, recurring sales and gross profit, even during periods of private sector caution or macro volatility.
The company’s disciplined expense management, scalable business model, and ongoing leverage of strategic acquisitions in high-growth segments (such as Mission Cloud Services) are driving continued operating leverage and free cash flow conversion, which directly bolsters the pace of dividend growth, buybacks, and, ultimately, earnings per share.

CDW Earnings and Revenue Growth

CDW Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

This narrative explores a more optimistic perspective on CDW compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
The bullish analysts are assuming CDW's revenue will grow by 6.1% annually over the next 3 years.
The bullish analysts assume that profit margins will increase from 5.1% today to 5.8% in 3 years time.
The bullish analysts expect earnings to reach $1.5 billion (and earnings per share of $10.4) by about July 2028, up from $1.1 billion today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 25.3x on those 2028 earnings, up from 21.8x today. This future PE is greater than the current PE for the US Electronic industry at 23.8x.
Analysts expect the number of shares outstanding to decline by 1.42% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.28%, as per the Simply Wall St company report.

CDW Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Ongoing migration to cloud and adoption of SaaS are driving customers away from traditional on-premises hardware, as evidenced by declines in NetComm and storage, signaling a potential long-term decrease in demand for CDW’s core hardware offerings, which could negatively impact overall revenues.
Large customers are increasingly shifting spending directly to OEMs or cloud providers and favoring consumption-based and as-a-service models, which could bypass resellers like CDW, leading to long-term pressure on both gross profit and revenue as their intermediary role diminishes.
Hardware refresh cycles are vulnerable to extension due to customer budget caution and focus on expense elasticity, as discussed in the muted outlook for federal and education sectors, which may result in weaker recurring sales and limit revenue growth in future years.
The growing share of commoditized hardware and intense pricing competition, confirmed by discussions of margin resilience despite heavier dependence on lower-margin client devices, could erode net margins and restrict long-term earnings growth if value-added differentiation lags industry peers.
Increased automation in IT procurement and vendor consolidation, alongside the rise of bundled offerings from manufacturers, threaten CDW’s intermediary position, risking ongoing volume and gross profit contraction as customers migrate toward more seamless, direct, and software-driven procurement channels.

Valuation

How have all the factors above been brought together to estimate a fair value?

The assumed bullish price target for CDW is $234.14, which represents two standard deviations above the consensus price target of $212.47. This valuation is based on what can be assumed as the expectations of CDW's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $235.0, and the most bearish reporting a price target of just $200.0.
In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $25.5 billion, earnings will come to $1.5 billion, and it would be trading on a PE ratio of 25.3x, assuming you use a discount rate of 8.3%.
Given the current share price of $180.07, the bullish analyst price target of $234.14 is 23.1% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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