CDW Corp 10-K Analysis & Summary – 2/21/2025

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CDW Corp

10-K

Annual report

Filing date:

02/21/2025

TLDR:

CDW Corporation’s 2024 performance shows a slight revenue decline but maintains a strong market position. Key risks include vendor relationships and cybersecurity, while opportunities exist in expanding service offerings and leveraging new technologies.

ELI5:

CDW, a company that sells computer stuff to businesses, had a slightly less good year in 2024. They need to watch out for competition and security threats, but they can grow by selling more services like cloud computing.

Accession #:

0001402057-25-000018

Published on

March 16, 2025

Analyst Summary

Net Sales decreased by 1.8% to $20.999 billion.
Gross Profit decreased by 1.1% to $4.602 billion.
Gross Profit Margin increased slightly to 21.9%.
Operating Income decreased by 1.8% to $1.651 billion.
Net Income decreased by 2.4% to $1.078 billion.
Adjusted Free Cash Flow decreased to $1.079 billion from $1.427 billion.
Basic EPS decreased from $8.20 in 2023 to $8.06 in 2024.
Diluted EPS decreased from $8.10 in 2023 to $7.97 in 2024.
The current ratio increased from 1.23 in 2023 to 1.35 in 2024.
The quick ratio increased from 1.11 in 2023 to 1.24 in 2024.
The cash ratio increased from 0.11 in 2023 to 0.13 in 2024.
The debt-to-equity ratio decreased from 2.46 in 2023 to 2.38 in 2024.
The debt-to-assets ratio remained constant at 0.38 from 2023 to 2024.
The interest coverage ratio increased from 7.42 in 2023 to 7.70 in 2024.
DSO increased from 77 days in 2023 to 89.2 days in 2024.

Opportunities and Risks

Vendor Relationships: Dependence on key vendor partners and wholesale distributors, with potential negative impacts from changes in relationships or product availability.
Competition: Intense competition from various players, including resellers, manufacturers, and e-commerce companies.
Cybersecurity Threats: Increasing risk of data breaches and cybersecurity incidents, which could result in financial losses and reputational damage.
Economic Conditions: Global and regional economic conditions, including inflation and rising interest rates, may negatively impact customer spending on technology products and services.
Legal and Regulatory Risks: Failure to comply with public sector contracts or applicable laws and regulations could result in fines, termination of contracts, or debarment from doing business with governmental entities.
Expanding Service Offerings: Growing demand for integrated IT solutions and services, including cloud computing, AI, and security.
Leveraging New Technologies: Capitalizing on emerging technologies and consumption models to create new offerings and solutions.
Customer Diversity: Serving a diverse customer base across various end-markets, providing multiple avenues for growth and resilience to economic cycles.
Strategic Investments and Acquisitions: Pursuing strategic investments and acquisitions to extend or complement existing business.

Potential Implications

Company Performance

Strengthening relationships with key vendor partners and diversifying its supply chain to mitigate potential disruptions.
Anticipating and adapting to new technologies and consumption models to maintain a competitive edge.
Implementing robust security controls and incident response plans to protect against evolving cybersecurity threats.
Closely monitoring global and regional economic conditions and adjusting its strategies accordingly.
Ensuring compliance with all applicable laws and regulations, particularly in the public sector.

Executive Summary

CDW Corporation’s 2024 10-K filing reveals a mixed performance. While the company maintains a strong market position and diverse customer base, revenue declined slightly, impacting profitability. Key risks include vendor relationships, competition, and cybersecurity threats. Opportunities lie in expanding service offerings and leveraging new technologies like AI. Overall, a cautious approach is warranted, suggesting a “hold” rating. Focus should be on monitoring key ratios, managing risks, and capitalizing on growth opportunities.

Company Overview

CDW Corporation is a leading multi-brand provider of IT solutions to business, government, education, and healthcare customers in the US, UK, and Canada. The company offers a broad range of products and services, including hardware, software, and integrated IT solutions. CDW operates through three reportable segments: Corporate, Small Business, and Public, along with operations in the UK and Canada.

Detailed Analysis

Financial Statement Analysis

Key financial highlights from the 10-K include:

Net Sales: Decreased by 1.8% to $20.999 billion.
Gross Profit: Decreased by 1.1% to $4.602 billion.
Gross Profit Margin: Increased slightly to 21.9%.
Operating Income: Decreased by 1.8% to $1.651 billion.
Operating Income Margin: Remained constant at 7.9%.
Net Income: Decreased by 2.4% to $1.078 billion.
Adjusted Free Cash Flow: Decreased to $1.079 billion from $1.427 billion.

Key Ratios and Trends:

Ratio	2024	2023	Trend
Gross Profit Margin	21.9%	21.8%	Slight Increase
Operating Income Margin	7.9%	7.9%	Stable
Cash Conversion Cycle (Days)	18	17	Slight Increase

The slight increase in gross profit margin suggests improved efficiency or pricing strategies, but the decrease in net sales and operating income indicates challenges in maintaining profitability. The increase in the cash conversion cycle suggests a potential slowdown in collecting receivables or managing inventory.

Management’s Discussion and Analysis (MD&A) Insights

Management attributes the decrease in net sales to continued economic uncertainty and a cautious approach to technology spending by customers.
The company is focused on providing solutions that address business optimization, cost management, and security risk management.
Technology trends such as cloud adoption, AI, and “as a service” offerings are key drivers of customer purchasing behavior.

Red Flags and Uncommon Metrics:

Civil Investigative Demand: The Company received a Civil Investigative Demand from the US Department of Justice in connection with a False Claims Act investigation.
Supply Chain Disruptions: The company acknowledges potential disruptions in the supply chain due to various factors, including political instability, natural disasters, and trade restrictions.
Increased Indebtedness: The company has a significant level of debt, which could impact its financial flexibility and increase its vulnerability to adverse economic conditions.

Risk and Opportunity Assessment

Risks:

Vendor Relationships: Dependence on key vendor partners and wholesale distributors, with potential negative impacts from changes in relationships or product availability.
Competition: Intense competition from various players, including resellers, manufacturers, and e-commerce companies.
Cybersecurity Threats: Increasing risk of data breaches and cybersecurity incidents, which could result in financial losses and reputational damage.
Economic Conditions: Global and regional economic conditions, including inflation and rising interest rates, may negatively impact customer spending on technology products and services.
Legal and Regulatory Risks: Failure to comply with public sector contracts or applicable laws and regulations could result in fines, termination of contracts, or debarment from doing business with governmental entities.

Opportunities:

Expanding Service Offerings: Growing demand for integrated IT solutions and services, including cloud computing, AI, and security.
Leveraging New Technologies: Capitalizing on emerging technologies and consumption models to create new offerings and solutions.
Customer Diversity: Serving a diverse customer base across various end-markets, providing multiple avenues for growth and resilience to economic cycles.
Strategic Investments and Acquisitions: Pursuing strategic investments and acquisitions to extend or complement existing business.

Conclusion and Actionable Insights

CDW Corporation faces challenges in a dynamic and competitive market. While the company has a strong foundation and diverse customer base, declining revenue and increasing risks require careful management. The company should focus on:

Managing Vendor Relationships: Strengthening relationships with key vendor partners and diversifying its supply chain to mitigate potential disruptions.
Investing in Innovation: Anticipating and adapting to new technologies and consumption models to maintain a competitive edge.
Enhancing Cybersecurity Measures: Implementing robust security controls and incident response plans to protect against evolving cybersecurity threats.
Monitoring Economic Conditions: Closely monitoring global and regional economic conditions and adjusting its strategies accordingly.
Addressing Legal and Regulatory Risks: Ensuring compliance with all applicable laws and regulations, particularly in the public sector.

Overall Assessment: Hold

CDW Financial Analysis – 2024

CDW experienced a slight decline in overall financial performance in 2024. While gross profit margin remained relatively stable, net sales and net income decreased. The company continued its share repurchase program and dividend payments, reflecting a commitment to returning value to shareholders. Debt levels remain high, which could pose a risk in a rising interest rate environment.

1. Financial Ratio and Metric Analysis:

Profitability:

Gross Profit Margin
- Ratio/Metric: Gross Profit / Net Sales = $4,602.4 / $20,998.7 = 21.9%
- Trend: The gross profit margin increased from 21.8% in 2023 to 21.9% in 2024, a 0.46% increase.
- Industry: The IT industry typically sees gross profit margins ranging from 20% to 50%, depending on the mix of hardware, software, and services. CDW’s margin is at the lower end, reflecting its significant hardware sales.
Operating Profit Margin
- Ratio/Metric: Operating Income / Net Sales = $1,651.3 / $20,998.7 = 7.9%
- Trend: The operating profit margin remained constant at 7.9% from 2023 to 2024.
- Industry: The IT industry typically sees operating profit margins ranging from 5% to 15%. CDW’s margin is at the lower end, reflecting its significant hardware sales.
Net Profit Margin
- Ratio/Metric: Net Income / Net Sales = $1,077.8 / $20,998.7 = 5.1%
- Trend: The net profit margin decreased from 5.2% in 2023 to 5.1% in 2024, a 1.92% decrease.
- Industry: The IT industry typically sees net profit margins ranging from 3% to 12%. CDW’s margin is in the middle, reflecting its significant hardware sales.
Return on Assets (ROA)
- Ratio/Metric: Net Income / Total Assets = $1,077.8 / $14,678.4 = 7.3%
- Industry: A good ROA generally exceeds 5%, indicating efficient asset utilization. CDW’s ROA is above this threshold.
Return on Equity (ROE)
- Ratio/Metric: Net Income / Total Stockholders’ Equity = $1,077.8 / $2,352.7 = 45.8%
- Industry: A good ROE generally exceeds 10%, indicating efficient equity utilization. CDW’s ROE is well above this threshold.
Earnings Per Share (EPS) – Basic
- Ratio/Metric: Net Income / Weighted-Average Common Shares Outstanding (Basic) = $1,077.8 / 133.8 = $8.06
- Trend: Basic EPS decreased from $8.20 in 2023 to $8.06 in 2024, a 1.71% decrease.
- Industry: EPS varies widely. It’s best compared to direct competitors.
Earnings Per Share (EPS) – Diluted
- Ratio/Metric: Net Income / Weighted-Average Common Shares Outstanding (Diluted) = $1,077.8 / 135.2 = $7.97
- Trend: Diluted EPS decreased from $8.10 in 2023 to $7.97 in 2024, a 1.60% decrease.
- Industry: EPS varies widely. It’s best compared to direct competitors.

Liquidity:

Current Ratio
- Ratio/Metric: Current Assets / Current Liabilities = $7,373.1 / $5,474.4 = 1.35
- Trend: The current ratio increased from 1.23 in 2023 to 1.35 in 2024, a 9.76% increase.
- Industry: A current ratio between 1.5 and 2 is generally considered healthy. CDW’s ratio is slightly below this range, suggesting moderate liquidity.
Quick Ratio (Acid-Test Ratio)
- Ratio/Metric: (Current Assets – Inventory) / Current Liabilities = ($7,373.1 – $605.3) / $5,474.4 = 1.24
- Trend: The quick ratio increased from 1.11 in 2023 to 1.24 in 2024, a 11.71% increase.
- Industry: A quick ratio of 1 or greater is generally considered acceptable. CDW’s ratio is above 1, indicating good short-term liquidity.
Cash Ratio
- Ratio/Metric: (Cash & Cash Equivalents + Short-Term Investments) / Current Liabilities = ($503.5 + $214.2) / $5,474.4 = 0.13
- Trend: The cash ratio decreased from 0.11 in 2023 to 0.13 in 2024, a 18.18% increase.
- Industry: A cash ratio of 0.5 or higher is generally considered ideal, but acceptable cash ratio varies greatly by industry. CDW’s ratio is low, indicating reliance on other current assets to meet short-term obligations.

Solvency/Leverage:

Debt-to-Equity Ratio
- Ratio/Metric: Total Debt / Total Stockholders’ Equity = $5,607.0 / $2,352.7 = 2.38
- Trend: The debt-to-equity ratio increased from 2.46 in 2023 to 2.38 in 2024, a 3.25% decrease.
- Industry: A debt-to-equity ratio above 2 can be considered high, indicating a reliance on debt financing. CDW’s ratio is high, suggesting a leveraged capital structure.
Debt-to-Assets Ratio
- Ratio/Metric: Total Debt / Total Assets = $5,607.0 / $14,678.4 = 0.38
- Trend: The debt-to-assets ratio increased from 0.38 in 2023 to 0.38 in 2024, a 0% increase.
- Industry: A debt-to-assets ratio above 0.5 is generally considered high. CDW’s ratio is below this level, suggesting a moderate level of debt relative to assets.
Interest Coverage Ratio (Times Interest Earned)
- Ratio/Metric: Operating Income / Interest Expense = $1,651.3 / $214.5 = 7.70
- Trend: The interest coverage ratio decreased from 7.42 in 2023 to 7.70 in 2024, a 3.77% increase.
- Industry: A ratio above 1.5 is generally considered safe. CDW’s ratio is well above this level, indicating a strong ability to cover interest payments.

Activity/Efficiency:

Inventory Turnover
- Ratio/Metric: Cost of Sales / Average Inventory = $16,396.3 / (($605.3 + $668.1) / 2) = 25.8
- Trend: N/A
- Industry: Inventory turnover varies widely by industry. For IT hardware, a turnover of 6-8 is typical. CDW’s high turnover suggests efficient inventory management.
Days Sales Outstanding (DSO)
- Ratio/Metric: (Accounts Receivable / Net Sales) * 365 = ($5,135.8 / $20,998.7) * 365 = 89.2
- Trend: DSO increased from 77 days in 2023 to 89.2 days in 2024, a 15.84% increase.
- Industry: DSO varies by industry and customer base. An increasing DSO could indicate issues with collections.
Days Payable Outstanding (DPO)
- Ratio/Metric: (Accounts Payable / Cost of Sales) * 365 = ($3,381.3 / $16,396.3) * 365 = 75.2
- Trend: N/A
- Industry: DPO varies by industry. A high DPO can indicate strong negotiating power with suppliers, but also potential strain on supplier relationships.
Asset Turnover
- Ratio/Metric: Net Sales / Total Assets = $20,998.7 / $14,678.4 = 1.43
- Trend: N/A
- Industry: An asset turnover ratio of 1 or higher is generally considered good. CDW’s ratio indicates efficient asset utilization.

Valuation:

Price-to-Earnings Ratio (P/E)
- Ratio/Metric: Stock Price / EPS = $186.50 / $7.97 = 23.4
- Trend: N/A
- Industry: The average P/E ratio for the S&P 500 is around 25. CDW’s P/E ratio is slightly below this, suggesting it may be fairly valued relative to its earnings.
Price-to-Book Ratio (P/B)
- Ratio/Metric: Market Cap / Book Value of Equity = (186.50 * 132.6) / $2,352.7 = 10.5
- Trend: N/A
- Industry: A P/B ratio between 1 and 3 is considered a good value. CDW’s P/B ratio is high, suggesting the market values the company’s intangible assets and growth potential.
Price-to-Sales Ratio (P/S)
- Ratio/Metric: Market Cap / Net Sales = (186.50 * 132.6) / $20,998.7 = 1.18
- Trend: N/A
- Industry: A P/S ratio below 1 is generally considered undervalued. CDW’s P/S ratio is slightly above 1, suggesting it may be fairly valued relative to its sales.
Enterprise Value to EBITDA (EV/EBITDA)
- Ratio/Metric: (Market Cap + Total Debt – Cash) / EBITDA = ((186.50 * 132.6) + $5,607.0 – $503.5) / ($1,651.3 + $275.3) = 16.1
- Trend: N/A
- Industry: An EV/EBITDA ratio between 10 and 15 is generally considered fair value. CDW’s ratio is slightly above this range, suggesting it may be slightly overvalued.

Growth Rates

Revenue Growth
- Ratio/Metric: ($20,998.7 – $21,376.0) / $21,376.0 = -1.8%
- Trend: Revenue decreased by 1.8%
- Industry: N/A
Net Income Growth
- Ratio/Metric: ($1,077.8 – $1,104.3) / $1,104.3 = -2.4%
- Trend: Net Income decreased by 2.4%
- Industry: N/A
EPS Growth
- Ratio/Metric: ($7.97 – $8.10) / $8.10 = -1.6%
- Trend: EPS decreased by 1.6%
- Industry: N/A

Other Relevant Metrics:

Non-GAAP Metrics: CDW presents several non-GAAP metrics, including non-GAAP operating income and non-GAAP net income. These metrics exclude items such as amortization of intangibles, equity-based compensation, transformation initiatives, acquisition and integration expenses, and workplace optimization costs. While these adjustments can provide insights into the company’s underlying performance, investors should carefully evaluate the rationale for these exclusions and compare them to GAAP measures.
Share Repurchases: CDW continued its share repurchase program in 2024, buying back 0.8 million shares for a total cost of $143.7 million. This indicates management’s confidence in the company’s future prospects and a commitment to returning value to shareholders.

2. Commentary:

CDW’s 2024 financial performance reflects a slight contraction in revenue and profitability compared to the previous year. While the company maintains a strong liquidity position and a high interest coverage ratio, its high debt levels and increasing DSO warrant attention. The company’s continued focus on share repurchases and dividend payments underscores its commitment to shareholder value. Investors should closely monitor CDW’s ability to navigate the evolving IT landscape and maintain its competitive edge.