Why cdw

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Download Now Download Download to read offline. Solutions Overview. Welcome to CMS Distribution. CDW Overview. FCF grew slower than net income during this time period because in , the starting year for these calculations, FCF was so much higher than net income. Regardless, FCF still grew at almost double the rate of revenue. Census Bureau. CDW is leasing smartphones and tablets to enable , field workers to take the census.

This will also add about 1 percentage of incremental revenue growth in , but the census project will end this year so this is a significant but nonrecurring revenue stream. The combination of strong or rising organic revenue growth with strong or rising ROIC is investors' nirvana because it indicates that CDW is creating lots of business value. It's a growing business with a growth mindset.

In fact, the company recently created a new role of chief growth and innovation officer to address that fact. Long-term growth should come from a conversion-to-digital tailwind and continued market share gains. Additional growth could come from acquisitions and continued international expansion.

CDW has a growing presence in Canada and the U. That's the first small step to setting up larger fulfillment operations in those countries over time.

This is an exciting growth story, Fools. Its revenue growth is somewhat tied to customer headcount growth, but CDW has been able to generate slight operating margin improvements as it shifts to higher-margin services and from leveraging technology and automation internally.

Below the operating margin line, CDW's net income also benefited largely from deleveraging paying down debt reduces interest expense and from corporate tax cuts. As a reseller, CDW is a low-margin business. Its gross margins are stable in the CDW's return on tangible capital is so much higher than its ROIC which is also high because lots of goodwill was added to the balance sheet during the leveraged buyout.

That return-on-tangible-capital figure shows the truly awesome profitability of the underlying operating business. Basically, the company is becoming more efficient at managing its working capital and other assets on its balance sheet. This means CDW is able to generate healthy ROIC despite low margins because of its high and improving capital efficiency , or invested capital turns, and its improving margins are boosting returns as well. In my experience, it is somewhat rare to find a business whose ROIC is getting a boost from both higher turns and higher margins, and I think this is an indicator that the company has been firing on all cylinders.

One of the benefits of operating under private equity ownership is you get very focused on aggressively managing working capital and cash conversion very quickly because those cash flows are needed to service the large debt load. Today, CDW's balance sheet is much healthier, but it is still operating under its tougher efficiency guidelines, especially with regards to monitoring the cash in and out of the business.

It's just built into this company's corporate DNA now. We've talked about revenue growth and ROIC, which are important because they ultimately drive free cash flow.

CDW is a low-margin business, but its FCF is pretty strong because its average capital-expenditures-to-sales ratio is only 0. CDW generated more FCF than net income in each of the past four years , and it has a long-term goal to generate an annual FCF margin in the 3. But this is a one-time project that will end in This means that CDW's capex will return to its normal level of about 0. Expect that the company's FCF will remain strong and continue to grow at least in line with its organic revenue.

CDW's moats include its long-term relationships with both vendors and customers, the scale and scope of products and services offered and distribution capabilities, and unique insights gained from being a key partner to both customers and IT vendors. The company sits in the middle of the tech supply chain offering attractive value propositions to both customers and vendor partners OEMs, software companies, and the like.

CDW says that it acts as both "an extension of its customers' IT staffs" and "an extension of its partners' sales and marketing resources. What truly makes CDW unique is its multiple sources of interlocking competitive advantages. Of those, I'm most impressed by its scale and scope relative to its peers. Its size allows it to invest heavily in its sales force and engineering teams, own three distribution centers, and make sure that it gets its fair share of inventory from vendors when there are supply shortages.

This means that CDW will have the inventory that its customers require. This is similar to the competitive advantage question, but it goes a step further. I won't recommend a company that isn't truly differentiated and doesn't have differentiation that shows up through superior corporate financial performance. CDW is unique because it has multiple sources to reinforce its moat. I especially like that it is the single largest player in an attractive industry and has a scale and scope that is multiples larger than its peers.

This provides the company with negotiating leverage, innovative product offerings, multiple levers of profitable growth, and an attractive workplace for top tech talent. I also think it's unique because it provides an equal amount of value to both its vendor partners and its customers and is run by a CEO who is committed to taking a stakeholder approach to drive sustainable profitable growth.

This second point is of grave importance and will contribute as much or more to long-term business value growth than anything else. It is CDW's non-zero sum and stakeholder approach to growing the business sustainably over time that provides the company with its most enduring moat, while providing investors with a different type of margin of safety.

If you like dividend growth stories, this company has one! Although its first priority is to increase the dividend, CDW actually spends more on annual share repurchases than it does on dividends.

Regarding acquisitions, CDW looks for product relevance and innovation, strategic and cultural fit, international expansion, and attractive financial returns.

I like that CDW is not overly aggressive with acquisitions it's only bought three companies in the last 10 years and that this is not a roll-up story. Its ROIC has actually improved despite the acquisitions, which is a key indicator of success. I'm going to say no, for now, because it doesn't increase prices annually and doesn't have recurring revenue that we'd see from companies with long-term contracts or that sell use-once-and-dispose consumables, or that sell subscription services.

CDW's contracts are not long term with customers or vendors , but only 12 months in length. Its managed-services contracts are longer and therefore recurring , but managed services are a small part of its business. Pricing at CDW is actually set by the account managers sellers because they have the closest relationship with the customer. The sales force is given a price minimum and a price range, and then picks the best price based on its knowledge of the customer and the competitive environment.

Sellers are compensated based on a percentage of gross profit, and this model clearly works because of CDW's already referenced very stable gross margin profile. Everything we do revolves around our customers—all , of them.

By providing customers with our expertise and our willingness to go above and beyond, they are eager to continue working with us. Our broad range of abilities help us meet our customers' unique needs. If CDW sounds like a place for you, view our career opportunities. CDW is an equal opportunity employer committed to a diverse and inclusive workplace. If you are an individual that needs assistance in applying for a position, please start here. View our Privacy Policy , Sitemap.

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