Last Update 10 Dec 25

CDW: Long-Term Software And Services Mix Will Drive Stronger Margins

Analysts have reduced their price target on CDW by $30 to $170, reflecting near term caution around softer revenue trends and macro uncertainty, even as they acknowledge the company’s longer term shift in its business mix toward higher margin software and services.

Analyst Commentary

Analysts are parsing CDW’s latest results and guidance through the lens of a challenging macro backdrop, with differing views on how quickly the business can re-accelerate and justify a higher valuation.

Bullish Takeaways

Bullish analysts highlight the ongoing mix shift toward higher margin software and services as a structural positive that can support earnings growth even if revenue remains subdued in the near term.
The long-term opportunity to deepen wallet share with enterprise and public sector customers is seen as intact, suggesting that CDW can resume mid-single to high-single digit growth once spending normalizes.
Some see the reset in expectations and lower price target as de-risking the story, arguing that current valuation already discounts a period of weaker growth and leaves room for upside if execution remains solid.
CDW’s scale, vendor relationships, and diversified end markets are viewed as competitive advantages that should enable the company to capture incremental share as IT budgets gradually recover.

Bearish Takeaways

Bearish analysts emphasize that fiscal Q3 revenue came in slightly below expectations and that implied Q4 guidance trails prior forecasts, raising concerns about the pace of demand recovery.
The broader spending environment remains uncertain, with particular caution around delayed or constrained IT budgets that could pressure both revenue growth and near-term operating leverage.
Federal sales are being negatively impacted by the U.S. government shutdown, introducing additional volatility and limiting visibility into one of CDW’s important end markets.
Some worry that the valuation still embeds a premium for consistent growth and margin resilience, leaving limited room for multiple expansion if macro headwinds persist longer than expected.

What's in the News

Mission and CDW launched six integrated multi-product cloud solutions in AWS Marketplace, combining Mission’s AWS expertise with CDW’s enterprise technology capabilities to streamline cloud security, governance, and operations procurement (Key Developments).
The new offerings integrate tools such as Mission Cloud Gateway, Mission Cloud Operate, Mission Cloud Secure, New Relic observability, Vega Cloud FinOps, CrowdStrike Falcon security, and Nutanix Cloud Clusters to provide unified visibility, security, and governance across AWS and hybrid environments (Key Developments).
CDW repurchased 900,000 shares for $150.23 million in the latest tranche, bringing total buybacks under its long-running program to 55.5 million shares, or 36.9% of shares outstanding, at an aggregate cost of $5.66 billion (Key Developments).
The Board declared a quarterly cash dividend of $0.63 per share, payable December 10, 2025, a roughly 1% increase year over year and consistent with the target payout of 25% of trailing twelve-month non-GAAP net income (Key Developments).

Valuation Changes

Fair Value: Unchanged at approximately $182.00 per share, indicating no adjustment to the intrinsic value estimate despite recent macro and business mix developments.
Discount Rate: Risen slightly from about 9.30% to 9.31%, reflecting a modest increase in perceived risk or required return for CDW’s equity.
Revenue Growth: Effectively unchanged at roughly 3.64% annually, suggesting stable expectations for CDW’s long term top line trajectory.
Net Profit Margin: Essentially flat at about 5.59%, indicating no material shift in projected long term profitability.
Future P/E: Edged up marginally from about 21.26x to 21.27x, implying a slightly higher valuation multiple applied to forward earnings assumptions.

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.

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