2023-07-18 08:32:00 ET
IT service provider CDW ( NASDAQ: CDW ) slipped fractionally in pre-market trading on Tuesday as investment firm Barclays initiated coverage, noting it sees improving software and services mix offset by macro and PC pressures.
Analyst George Wang started CDW ( CDW ) shares with an equal-weight rating and a per-share price target of $198, noting that the second-half of the year is likely to be weak for the PC market, including below seasonal trends for the third-quarter.
"We see balanced risk / reward and limited upside to our estimates in the near term as we believe CDW has already baked in back-end-weighted C2H and sequential growth in the back half," Wang wrote in an investor note. "Lower hardware spending has flowed through to impact software and services attach."
Wang added that CDW ( CDW ) has 76% of its overall revenue from hardware (including 30% just from PCs), with the belief that any recovery is "getting pushed out further," due to weakness in servers and storage and enterprise networking.
Looking further out, Wang said CDW ( CDW ) is likely facing the same challenges that other hardware companies are facing as more IT moves to the public cloud and less is on-premise deployment and there is more direct-to-consumer for software companies. There are also concerns that the recovery in demand for small and medium-sized businesses could take "longer than expected," which could negatively impact the company, given that 50% of its revenue comes from the SMB segment of the economy.
On the plus side, Wang said CDW ( CDW ) could benefit from an improved global economy, and a boost to its software and services content. The company could also benefit from potential deals and "bolt-on acquisitions" with its excess free cash flow and incremental balance sheet leverage.
"Ultimately, we believe CDW is a [high single digits] grower for revenue and [low double digits] grower on EPS, with share gains and strong FCF generation," Wang posited. "We could revisit the story once we get more visibility on IT spend recovery and macro turns."
More on CDW
- CDW Corporation: Mixed Results Warrants A Hold Rating
- CDW Corporation Stumbles Amid Challenging Market Conditions
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CDW falls as Barclays sees improving revenue mix offset by macro, PC pressures