RBC Capital Raises Price Target on CDW (CDW) to $50; Reiterates Outperform
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RBC Capital reiterated an Outperform rating on CDW Corporation (NASDAQ: CDW), and raised the price target to $50.00 (from $48.00). The main forces behind CDW’s performance are its scale, specialists, and compensation structure. RBC believes that the company’s operating margins should expand as the company remains focused on shifting toward higher-margin solutions business to achieve a balanced revenue portfolio.
Analyst Amit Daryanani commented, "We think that fundamentally CDW should continue being re-rated higher over the next several years as the company continues to execute on its share gain opportunity, dilutes the cloud threat, deploys a larger portion of FCF for capital allocation, and enables mid-teens total shareholder return. To look at the valuation upside, we analyzed CDW’s valuation pre-2007 LBO when the stock traded at a healthy absolute and relative valuation vs. where it's currently trading. While the current valuation of ~13x PE is ~35% below the 5-year average CDW traded at prior to going private, we think there are certain factors that explain the severe delta in valuation today: slower growth (IT spend more cyclical today vs. 10–12 years ago); a more leveraged balance sheet today; and lack of cloud concerns. We do think that CDW, provided the execution remains solid, should at minimum approach a S&P500 valuation (~16–17x PE) vs. currently trading at a ~20% discount (pre-LBO traded at 24% premium). Assuming CDW moves toward a market multiple, the stock should work toward ~$60; if the company were to approach its pre-LBO valuation, we could see the stock exceed $65. We maintain our Outperform rating and increase our price target to $50 from $48."
Shares of CDW Corporation closed at $44.99 yesterday.
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Create E-mail Alert Related CategoriesAnalyst Comments, Analyst EPS Change, Analyst PT Change
Related EntitiesRBC Capital, Standard & Poor's
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