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On Friday, Citi reaffirmed its Buy rating on CDW Corporation (NASDAQ:CDW) stock, maintaining a $260.00 price target. The firm's analysis suggests that CDW's shares have underperformed compared to its peers, noting a 15% decline over the past three months, in contrast to a 6% increase for the broader index.
he analyst pointed to CDW's second-quarter guidance, which reflects a cautious outlook with an expected quarter-over-quarter growth of 12%, which is below the mid-teens growth observed before the pandemic.
This conservative stance is attributed to slow spending in the small and medium-sized business (SMB) and corporate sectors, which is somewhat balanced by robust spending from government, education, and healthcare sectors.
In comparison, CDW's peers in the industry, such as Synnex Corporation, have indicated a more optimistic view, particularly with the anticipation of an accelerating PC refresh cycle in the second half of 2024. This optimism is supported by strong performance in enterprise, SMB, and public sector spending, with notable improvements in billings in North America.
Despite the cautious guidance from CDW, Citi believes the outlook for the company could improve throughout the year. This expectation is based on several factors, including the momentum of the PC refresh cycle, the resolution of federal spending following budget impasses, and a healthy project pipeline.
Furthermore, the firm expects CDW to maintain solid margins, supported by a shift towards cloud and Software as a Service (SaaS) offerings, as well as consistent product pricing.
Citi underscores that as spending rebounds, CDW's robust pipeline and dominant market share, particularly in assisting customers with AI solutions, will likely drive earnings growth acceleration. The firm's confidence in CDW's comprehensive product offerings and its strategic position in the market underpin the reiterated Buy rating.
In other recent news, CDK, a key retail technology and software provider, has suffered a major cyber attack, causing a significant disruption in the United States auto industry.
The incident has impacted numerous dealerships nationwide and is expected to result in a downturn in new vehicle sales for June 2024. Analysts from J.D. Power and GlobalData anticipate a decline of 2.6% to 7.2% in total new vehicle sales compared to the same period last year.
In response, CDK Global (NASDAQ:CDK) has advised dealers to prepare alternative arrangements for their month-end financial closing processes. A hacker group is demanding a multimillion-dollar ransom, causing a third consecutive day of system outages at CDK. The company is considering payment of the ransom to resolve the situation.
Meanwhile, CDW Corporation has reported its first-quarter earnings for 2024, revealing a challenging start to the year. The company's gross profit decreased by 2% year-over-year to $1.1 billion. Non-GAAP operating income and non-GAAP net income per share also fell by 7% and 6%, respectively.
On the other hand, Citi has adjusted its outlook on CDW Corporation, reducing its stock price target to $260 from the previous $295 while sustaining a Buy rating on the stock.
Despite the setbacks, CDW maintains its outlook for low single-digit gross profit growth for 2024. The company remains focused on capital allocation priorities, including dividends, net leverage ratio maintenance, and potential mergers and acquisitions.
InvestingPro Insights
CDW Corporation (NASDAQ:CDW) has demonstrated a consistent commitment to shareholder returns, having raised its dividend for 11 consecutive years, a testament to its financial resilience. While Citi maintains a bullish stance on CDW with a $260.00 price target, it's worth noting that recent real-time data from InvestingPro shows a mixed financial picture. CDW's market capitalization stands robust at $30.22 billion, yet it trades at a high price-to-earnings (P/E) ratio of 27.45, suggesting a premium relative to near-term earnings growth. Additionally, the company's price-to-book (P/B) ratio as of the last twelve months is 14.07, which indicates a valuation that is higher than what the book value of its assets would suggest.
Despite a decline in revenue growth of -7.67% over the last twelve months, CDW has maintained a steady gross profit margin of 21.88%. The company's ability to keep its dividend payments consistent for 12 years, as highlighted by one of the InvestingPro Tips, could be appealing to income-focused investors. Moreover, analysts anticipate that CDW will remain profitable this year, which may buoy investor confidence amidst the cautious outlook. For readers interested in more nuanced investment analysis, additional InvestingPro Tips are available, with a total of 10 more tips listed on the InvestingPro platform for CDW, providing a comprehensive understanding of the company's financial health and market position.
To gain deeper insights and access these additional InvestingPro Tips, readers can visit https://www.investing.com/pro/CDW and remember to use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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