Last Update 09 Jan 26

CDW: Software And Services Mix Will Support Earnings Quality Despite Near-Term Headwinds

Analysts have trimmed their CDW price targets to about $170 from $200, citing softer than expected recent revenue, slightly lower implied Q4 revenue guidance, and an uncertain spending backdrop, partly offset by the potential long term benefit of a greater mix of higher margin software and services.

Analyst Commentary

Analysts are processing the lower price targets through the lens of near term execution risks versus longer term mix and margin potential. The latest research highlights both reasons to stay constructive and clear reasons for caution.

Bullish Takeaways

Bullish analysts point to the growing mix of higher margin software and services as a key support for earnings quality over time, which can help justify current valuation levels even if hardware volumes stay under pressure.
The focus on software and services is seen as improving CDW's ability to generate profit from each dollar of revenue, giving the company more flexibility on pricing and reinvestment while still supporting returns.
Some bulls view the current macro and government related headwinds as more cyclical than structural. If those headwinds ease, it could allow the business model shift toward software and services to have a clearer impact on growth and margins.
The neutral rating from a large bank alongside a reset price target suggests to bullish readers that expectations are now more measured. This can lower the bar for future execution against revenue and margin goals.

Bearish Takeaways

Bearish analysts highlight that fiscal Q3 revenue came in just under estimates and that implied Q4 revenue guidance is also just below prior expectations, pointing to execution risk on top line growth.
The overall spending backdrop is described as uncertain, which raises questions about how quickly CDW can translate its software and services focus into consistent revenue expansion.
Federal sales are being affected by the U.S. government shutdown, introducing another layer of unpredictability for one of CDW's customer segments and adding risk to near term revenue trends.
The lowered price target to US$170 from US$200 reflects a more cautious stance on valuation, with analysts effectively marking down what they are willing to pay today for CDW's future cash flow potential.

What's in the News

CDW Corporation was removed from the NASDAQ-100 Index, which can affect index fund ownership and trading volume for the stock over time. (Key Developments)
Mission and CDW announced the availability of six integrated multi product cloud solutions in AWS Marketplace, combining Mission's AWS expertise with CDW's enterprise technology offerings across security, governance, and operations. (Key Developments)
The new AWS Marketplace solutions bundle services such as Mission Cloud Gateway, Mission Cloud Operate, Mission Cloud Secure, New Relic, Vega Cloud SaaS, CrowdStrike Falcon, Nutanix Cloud Clusters, and CDW Amplified Infrastructure, aiming to offer customers unified cloud management, security, and compliance options. (Key Developments)
From July 1, 2025 to September 30, 2025, CDW repurchased 900,000 shares for US$150.23m, bringing total buybacks under the program announced on November 6, 2014 to 55,500,000 shares for US$5,663.52m. (Key Developments)
CDW's Board of Directors declared a quarterly cash dividend of US$0.630 per share, payable on December 10, 2025, which the company states is about a 1% increase over the prior year and tied to 25% of trailing twelve month non GAAP net income through September 30, 2025. (Key Developments)

Valuation Changes

Fair Value: Model fair value estimate is unchanged at US$180.60.
Discount Rate: Discount rate has risen slightly from 9.35% to 9.41%.
Revenue Growth: Revenue growth assumption is effectively unchanged at about 3.59%.
Net Profit Margin: Net profit margin assumption is effectively unchanged at about 5.60%.
Future P/E: Future P/E multiple has edged up slightly from 21.13x to 21.17x.

Growing demand for AI, cloud, and cybersecurity is driving higher revenue and larger, more stable deal sizes for CDW.
Expanded services and disciplined capital allocation are boosting recurring revenue, margins, and resilient long-term earnings growth.
Shifting funding, lower-margin deals, limited operating leverage, intense competition, and macroeconomic uncertainties pose risks to revenue growth and sustained profitability.

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?

Accelerating adoption of AI, cloud, and cybersecurity solutions, as reflected in growing customer demand for AI consulting, managed cloud services, and comprehensive security projects, is positioning CDW to drive higher revenue and capture larger, stickier deal sizes in future quarters.
Expansion of CDW's software, professional, and managed services capabilities-now core to both strategy and recent M&A focus-continues to elevate recurring revenue and expand margins, supporting resilient long-term earnings growth.
Sustained digital transformation and hybrid IT investments across commercial, healthcare, international, and state/local government clients are broadening CDW's addressable market and dampening exposure to cyclical volatility, driving revenue stability and increasing the company's premium over baseline IT market growth rates.
Customer diversification and full-stack offerings are allowing CDW to capitalize on the proliferation of connected devices, complex infrastructure refresh cycles, and mission-critical IT upgrades-trends that are expected to underpin double-digit growth in software, client devices, networking, and storage revenues.
CDW's disciplined capital allocation, continued buybacks, and focus on expense leverage provide further room for efficiency gains and accretive shareholder returns, supporting EPS and free cash flow growth as secular IT spend increases.

CDW Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming CDW's revenue will grow by 3.5% annually over the next 3 years.
Analysts assume that profit margins will increase from 4.9% today to 5.5% in 3 years time.
Analysts expect earnings to reach $1.3 billion (and earnings per share of $9.87) by about September 2028, up from $1.1 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $1.2 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.9x on those 2028 earnings, up from 20.6x today. This future PE is greater than the current PE for the US Electronic industry at 23.9x.
Analysts expect the number of shares outstanding to decline by 1.65% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.93%, as per the Simply Wall St company report.

CDW Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Changes in federal and education funding, including the expiration of stimulus funds and new regulatory or funding pressures, are expected to create ongoing headwinds in these key end markets, potentially leading to declining revenue and muted earnings growth.
Gross margin has declined year-over-year due to a higher mix of large enterprise deals and a shift in product and customer mix toward lower-margin hardware and away from high-margin "netted down" revenues, which could pressure net margins if the trend continues.
The company's expense base is currently geared toward higher gross profit growth, but with recent quarters' profit growth coming in lighter than expected, operating leverage may be limited and adjusted EPS growth could decelerate, impacting earnings performance.
Competitive intensity in transactional hardware and potential commoditization, as noted in the context of large enterprise deals coming at lower margins, could lead to sustained price competition and further compress sector-wide net margins.
Persistent macroeconomic uncertainties, including potential recessionary conditions, higher inflation, increased geopolitical unrest, and changes to tariffs, have not been factored into the forecast and present risks that could impact both revenue growth and profitability.

Valuation

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

The analysts have a consensus price target of $206.8 for CDW based on their expectations of its future earnings growth, profit margins and other risk factors. 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 $176.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $24.3 billion, earnings will come to $1.3 billion, and it would be trading on a PE ratio of 24.9x, assuming you use a discount rate of 8.9%.
Given the current share price of $168.95, the analyst price target of $206.8 is 18.3% 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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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Healthcare and Commercial Gains Will Drive Earnings Momentum Amid Education Weakness