CDW — CDW Corporation

Both the tape and the sell-side lean positive. As of 2026-09-13 CDW is up 12.5% over one month and 32.4% over six months, helped by the 2026-08-05 Q2 print (record revenue, full-year 2026 EPS guidance raised to the high end of high-single-digit growth on strong hardware backlogs) and the early-September 2026 announcement of the ~$525M Lovelytics acquisition to build out the Data & AI services practice. Barclays raised its target to $150 and Morgan Stanley sits at $171; the consensus rating is Buy (1 Strong Buy / 12 Buy / 5 Hold). One tell: the $149.60 consensus target is now BELOW the $153.79 price, so the more current recent-average target of $163.67 is the better read on where the sell-side actually is.

Revenue has clearly inflected upward across the last four quarters: YoY growth ran +4.0% in Q3 2025, +6.3% in Q4 2025, +9.2% in Q1 2026 and +10.0% in Q2 2026 ($6.57B, a record quarter). That is acceleration, not a blip. Profitability, however, is moving the opposite way: gross margin fell to 20.1% in Q2 2026 - the lowest of the twelve quarters shown - from 20.8% a year earlier and 22.8% at the Q4 2025 peak, and operating margin slipped to 6.5% from 7.0% YoY (it peaked at 8.7% in Q3 2024). The mix is the culprit: growth is coming from lower-margin hardware/AI infrastructure rather than high-margin services, and net income rose only ~1.2% YoY in Q2 2026 despite the ~10% revenue jump. EPS is being held up by buybacks (stockholders' equity fell from $2.61B at 2025-12-31 to $2.44B at 2026-06-30), which is why EPS growth (+4.9% in Q2 2026) outruns net income growth. Net read: a genuine revenue-acceleration story that has NOT yet converted into earnings leverage.

At the 2026-09-13 price of $153.79, CDW trades at 18.4x TTM EPS of $8.506 versus a 5-year average P/E of 23.28x, and 0.84x sales versus a 5-year average of 1.14x - roughly a 20-27% discount to its own history. On the $10.953 next-FY consensus EPS the forward multiple is only ~14.0x, but that estimate implies roughly +29% EPS growth off TTM, which looks aggressive against CDW's actual mid-single-digit EPS trajectory; on a more realistic ~$8.7-8.8 FY2026 EPS the forward multiple is ~17.5x. PEG of 6.2 is stretched and simply reflects how slow trailing EPS growth has been. Support comes from a 1.77% dividend yield, a ~5.6% TTM free-cash-flow yield (~$1.11B FCF), 12.1% ROIC and a 40.9% ROE. Verdict: cheap versus its own history and reasonable in absolute terms, but the discount is earned by thin, compressing margins and slow earnings growth - it is not a screaming bargain.

The share price has run ~32% in six months while TTM EPS grew only ~1-5%, so the market is pre-paying for an AI-infrastructure/services inflection rather than paying for delivered earnings. As of 2026-09-13 the stock sits above the $149.60 consensus target but below the $163.67 recent-average and the $171 high - the sell-side is still catching up to the move. The swing factor is margin, not revenue: if Q3/Q4 2026 converts ~10% top-line growth into operating-margin stabilization (or the Lovelytics services mix lifts gross margin off the 20.1% trough), the re-rating holds and the ~14-17x forward multiple can expand toward the low 20s. If gross margin keeps sliding, EPS estimates - including that stretchy $10.95 - get cut and the stock de-rates. Watch EPS revisions, not price momentum.

As of 2026-09-13, RSI(14) stood at 59.8 - firm but not overbought. Price was 7.15% above its 20-day SMA (~$143.5), 9.40% above its 50-day (~$140.6) and 16.59% above its 200-day (~$132), a clean multi-timeframe uptrend; returns were +12.5% (1mo), +16.3% (3mo) and +32.4% (6mo). The 52-week range is $97.12-$169.20, so price is ~9% below its high. Read: trending with positive momentum but extended - chasing at $153.79 means buying into strength, and a pullback toward the $140-143 cluster would be a materially better entry. Not a short setup; a 'don't pay up' setup.

• Enterprise IT spend is rotating from raw cloud buildout toward AI implementation, data readiness and cybersecurity - a structural tailwind for CDW's solutions and services mix, and the narrative behind the current re-rating.
• Interest rates and financing: CDW carries ~$4.81B of long-term debt (D/E 2.44) and runs a working-capital-intensive model, so financing costs and any rate re-acceleration flow straight into FCF and buyback capacity.
• The IT hardware demand cycle: PC/notebook refresh, networking and storage backlogs are driving the current revenue acceleration - inherently cyclical and tied directly to corporate capex budgets.
• Public-sector exposure: meaningful government, education and healthcare revenue, which is budget-driven and seasonal (CDW's September quarter is typically its strongest).
• Tariffs and component pricing: as a multi-brand hardware reseller, CDW's already-thin gross margin is exposed to tariff-driven cost pass-through and vendor pricing dynamics.

• Q3 2026 earnings (expected early-to-mid November 2026) - the first real test of management's raised full-year 2026 guidance and of whether AI/hardware backlogs convert into margin-accretive revenue.
• Close and integration of the ~$525M Lovelytics acquisition (announced early September 2026, expected to close in Q3 2026), which adds higher-margin data & AI services to the mix.
• Ramp of AI/cybersecurity services partnerships (e.g. CrowdStrike's Project QuiltWorks) lifting the services share of revenue and, eventually, gross margin.
• Continued share buybacks (equity down to $2.44B at 2026-06-30), which mechanically support EPS even when net income growth is thin.

• Margin compression: Q2 2026 gross margin of 20.1% was the lowest in the three-year window and operating margin fell to 6.5% from 7.0% YoY - growth is coming from lower-margin hardware, not services.
• Weak earnings quality/operating leverage: Q2 2026 revenue +10% but net income only +1.2% YoY; EPS growth is being propped up by buybacks rather than profit growth.
• Leverage: $4.81B long-term debt, D/E of 2.44 and a current ratio of 1.17 leave a thin balance-sheet cushion and tie the story to financing costs.
• Expectations risk: the stock is up ~32% in six months and trades above the $149.60 sell-side consensus target - a lot of AI optimism is already priced in and margin may not cooperate.
• Execution/leadership risk around the AI pivot, highlighted by the recent departure of the CTO.
• Cyclicality: tariff/component-cost swings and a corporate capex slowdown could reverse the current revenue acceleration quickly.

CDW is a solid, cash-generative IT distributor trading at a real discount to its own history (18.4x TTM vs 23.3x five-year average P/E; 0.84x vs 1.14x sales) with revenue growth reaccelerating to ~10% and a credible higher-margin AI-services catalyst in Lovelytics. The catch is that earnings are not following revenue: gross margin hit a three-year low in Q2 2026, net income grew ~1%, and the 32% six-month run already prices in much of the AI optimism. This is a quality business to own on weakness, not to chase at $153.79 - I would want a pullback toward the $140 area or hard evidence of margin stabilization before getting aggressive.

Blended, calculated as of 2026-09-13 using three converging methods: (1) 17.0x a normalized forward EPS of ~$9.75 (TTM $8.51 grown ~12%, deliberately below the aggressive $10.953 consensus) = ~$166; (2) TTM FCF/share of $8.67 ($1.109B FCF / ~127.8M shares) capitalized at a 5.25% FCF yield = ~$165; (3) 13.0x TTM EBITDA of ~$1.94B less ~$4.45B net debt = ~$163/share. The three land near $164, which I take as fair value - roughly 7% above the 2026-09-13 price of $153.79 and in line with the $163.67 recent-average sell-side target.