On Wednesday, Evercore ISI adjusted its outlook on CDW Corporation (NASDAQ:CDW), a leading provider of technology products and services, by reducing its price target to $250 from the previous $300. The firm sustained its outperform rating on the stock despite a reported revenue and earnings shortfall for the March quarter.
CDW's revenue for the quarter came in at $4.87 billion with earnings per share (EPS) of $1.92, falling short of the anticipated $5.0 billion in revenue and $2.15 EPS. The company experienced a roughly 4.5% decline in sales year-over-year, with the corporate sector seeing a 3% drop and public sector sales decreasing by approximately 5%. This performance led to a near 9% drop in CDW's stock price today, reflecting investor disappointment and a softer outlook for the calendar year 2024 (CY24).
The analysis suggests that the downturn is largely due to ongoing caution in enterprise spending, especially among small to medium-sized business (SMB/SME) customers, which are central to CDW's operations. However, there is an expectation of improvement in the second half of the year. From a product standpoint, both hardware and software categories saw declines, but hardware fared slightly better than expected due to increased demand for client devices.
Looking ahead to the June quarter, CDW anticipates a modest quarter-over-quarter improvement in gross profit dollars, with expectations of a low double-digit increase versus the usual mid-teen seasonal trend. For CY24, CDW projects customer spending to rise roughly in line with IT spending plus 200-300 basis points, while gross profit dollars and EPS are expected to grow in the low-single digits, indicating an EPS of around $10.20. This represents a slight downward revision from the previous expectation of mid-single digit EPS growth.
The report concludes that, despite the weaker start to the year, CDW's CY24 trends and priorities in IT spending are anticipated to be similar to those in CY23, with the notable difference being an uptick in client devices counterbalanced by weakness in server and network communication markets. The firm remains committed to its outperform rating for CDW while acknowledging the need to adjust the price target in light of recent developments.
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