Intrinsic value of CDW Corporation - CDW

Previous Close

$104.24

  Intrinsic Value

$62.58

stock screener

  Rating & Target

sell

-40%

Previous close

$104.24

 
Intrinsic value

$62.58

 
Up/down potential

-40%

 
Rating

sell

We calculate the intrinsic value of CDW stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 15.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  8.60
  8.24
  7.92
  7.62
  7.36
  7.13
  6.91
  6.72
  6.55
  6.39
  6.26
  6.13
  6.02
  5.92
  5.82
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.39
  5.35
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
  5.17
Revenue, $m
  17,638
  19,091
  20,602
  22,173
  23,806
  25,502
  27,265
  29,098
  31,003
  32,986
  35,049
  37,198
  39,436
  41,768
  44,201
  46,738
  49,387
  52,153
  55,043
  58,062
  61,220
  64,522
  67,976
  71,592
  75,377
  79,341
  83,493
  87,842
  92,400
  97,176
Variable operating expenses, $m
  16,120
  17,447
  18,826
  20,261
  21,751
  23,300
  24,909
  26,583
  28,323
  30,133
  32,001
  33,963
  36,006
  38,136
  40,357
  42,674
  45,092
  47,618
  50,256
  53,013
  55,896
  58,911
  62,065
  65,367
  68,823
  72,442
  76,232
  80,203
  84,365
  88,726
Fixed operating expenses, $m
  429
  439
  448
  458
  468
  479
  489
  500
  511
  522
  534
  545
  557
  570
  582
  595
  608
  621
  635
  649
  663
  678
  693
  708
  724
  740
  756
  772
  789
  807
Total operating expenses, $m
  16,549
  17,886
  19,274
  20,719
  22,219
  23,779
  25,398
  27,083
  28,834
  30,655
  32,535
  34,508
  36,563
  38,706
  40,939
  43,269
  45,700
  48,239
  50,891
  53,662
  56,559
  59,589
  62,758
  66,075
  69,547
  73,182
  76,988
  80,975
  85,154
  89,533
Operating income, $m
  1,089
  1,206
  1,328
  1,454
  1,586
  1,723
  1,866
  2,015
  2,170
  2,331
  2,514
  2,689
  2,872
  3,063
  3,262
  3,469
  3,687
  3,914
  4,151
  4,400
  4,660
  4,933
  5,218
  5,518
  5,831
  6,160
  6,505
  6,866
  7,246
  7,644
EBITDA, $m
  1,256
  1,386
  1,521
  1,661
  1,807
  1,959
  2,116
  2,281
  2,452
  2,630
  2,816
  3,009
  3,211
  3,422
  3,642
  3,872
  4,112
  4,363
  4,625
  4,900
  5,187
  5,488
  5,803
  6,134
  6,480
  6,843
  7,223
  7,622
  8,041
  8,480
Interest expense (income), $m
  144
  173
  202
  232
  263
  295
  329
  364
  400
  438
  477
  518
  561
  605
  651
  699
  749
  801
  856
  913
  972
  1,034
  1,099
  1,167
  1,238
  1,313
  1,391
  1,472
  1,558
  1,648
  1,741
Earnings before tax, $m
  916
  1,004
  1,096
  1,191
  1,291
  1,394
  1,502
  1,615
  1,732
  1,854
  1,996
  2,129
  2,267
  2,412
  2,563
  2,721
  2,886
  3,058
  3,239
  3,428
  3,626
  3,834
  4,051
  4,279
  4,518
  4,769
  5,032
  5,308
  5,598
  5,902
Tax expense, $m
  247
  271
  296
  322
  349
  377
  406
  436
  468
  500
  539
  575
  612
  651
  692
  735
  779
  826
  874
  926
  979
  1,035
  1,094
  1,155
  1,220
  1,288
  1,359
  1,433
  1,512
  1,594
Net income, $m
  668
  733
  800
  870
  942
  1,018
  1,097
  1,179
  1,264
  1,353
  1,457
  1,554
  1,655
  1,761
  1,871
  1,986
  2,106
  2,232
  2,364
  2,502
  2,647
  2,799
  2,957
  3,124
  3,298
  3,481
  3,674
  3,875
  4,087
  4,309

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  7,784
  8,425
  9,092
  9,785
  10,506
  11,254
  12,032
  12,841
  13,682
  14,557
  15,467
  16,416
  17,403
  18,433
  19,506
  20,626
  21,795
  23,015
  24,291
  25,623
  27,017
  28,474
  29,998
  31,594
  33,265
  35,014
  36,846
  38,765
  40,777
  42,885
Adjusted assets (=assets-cash), $m
  7,784
  8,425
  9,092
  9,785
  10,506
  11,254
  12,032
  12,841
  13,682
  14,557
  15,467
  16,416
  17,403
  18,433
  19,506
  20,626
  21,795
  23,015
  24,291
  25,623
  27,017
  28,474
  29,998
  31,594
  33,265
  35,014
  36,846
  38,765
  40,777
  42,885
Revenue / Adjusted assets
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
Average production assets, $m
  1,958
  2,119
  2,287
  2,461
  2,642
  2,831
  3,026
  3,230
  3,441
  3,661
  3,890
  4,129
  4,377
  4,636
  4,906
  5,188
  5,482
  5,789
  6,110
  6,445
  6,795
  7,162
  7,545
  7,947
  8,367
  8,807
  9,268
  9,750
  10,256
  10,787
Working capital, $m
  882
  955
  1,030
  1,109
  1,190
  1,275
  1,363
  1,455
  1,550
  1,649
  1,752
  1,860
  1,972
  2,088
  2,210
  2,337
  2,469
  2,608
  2,752
  2,903
  3,061
  3,226
  3,399
  3,580
  3,769
  3,967
  4,175
  4,392
  4,620
  4,859
Total debt, $m
  3,741
  4,295
  4,872
  5,470
  6,093
  6,740
  7,412
  8,111
  8,837
  9,593
  10,380
  11,199
  12,053
  12,942
  13,869
  14,837
  15,847
  16,901
  18,003
  19,155
  20,358
  21,617
  22,935
  24,313
  25,757
  27,268
  28,851
  30,509
  32,247
  34,068
Total liabilities, $m
  6,725
  7,279
  7,855
  8,454
  9,077
  9,724
  10,396
  11,095
  11,821
  12,577
  13,364
  14,183
  15,036
  15,926
  16,853
  17,821
  18,831
  19,885
  20,987
  22,138
  23,342
  24,601
  25,919
  27,297
  28,741
  30,252
  31,835
  33,493
  35,231
  37,052
Total equity, $m
  1,059
  1,146
  1,237
  1,331
  1,429
  1,531
  1,636
  1,746
  1,861
  1,980
  2,104
  2,233
  2,367
  2,507
  2,653
  2,805
  2,964
  3,130
  3,304
  3,485
  3,674
  3,872
  4,080
  4,297
  4,524
  4,762
  5,011
  5,272
  5,546
  5,832
Total liabilities and equity, $m
  7,784
  8,425
  9,092
  9,785
  10,506
  11,255
  12,032
  12,841
  13,682
  14,557
  15,468
  16,416
  17,403
  18,433
  19,506
  20,626
  21,795
  23,015
  24,291
  25,623
  27,016
  28,473
  29,999
  31,594
  33,265
  35,014
  36,846
  38,765
  40,777
  42,884
Debt-to-equity ratio
  3.530
  3.750
  3.940
  4.110
  4.260
  4.400
  4.530
  4.640
  4.750
  4.850
  4.930
  5.020
  5.090
  5.160
  5.230
  5.290
  5.350
  5.400
  5.450
  5.500
  5.540
  5.580
  5.620
  5.660
  5.690
  5.730
  5.760
  5.790
  5.810
  5.840
Adjusted equity ratio
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  668
  733
  800
  870
  942
  1,018
  1,097
  1,179
  1,264
  1,353
  1,457
  1,554
  1,655
  1,761
  1,871
  1,986
  2,106
  2,232
  2,364
  2,502
  2,647
  2,799
  2,957
  3,124
  3,298
  3,481
  3,674
  3,875
  4,087
  4,309
Depreciation, amort., depletion, $m
  167
  180
  193
  206
  220
  235
  250
  266
  282
  299
  302
  320
  339
  359
  380
  402
  425
  449
  474
  500
  527
  555
  585
  616
  649
  683
  718
  756
  795
  836
Funds from operations, $m
  836
  913
  993
  1,076
  1,163
  1,253
  1,347
  1,445
  1,546
  1,653
  1,759
  1,874
  1,994
  2,120
  2,251
  2,388
  2,531
  2,681
  2,838
  3,002
  3,174
  3,354
  3,542
  3,740
  3,947
  4,164
  4,392
  4,631
  4,882
  5,145
Change in working capital, $m
  70
  73
  76
  79
  82
  85
  88
  92
  95
  99
  103
  107
  112
  117
  122
  127
  132
  138
  144
  151
  158
  165
  173
  181
  189
  198
  208
  217
  228
  239
Cash from operations, $m
  766
  840
  917
  998
  1,081
  1,168
  1,259
  1,353
  1,451
  1,553
  1,656
  1,767
  1,883
  2,003
  2,130
  2,261
  2,399
  2,543
  2,693
  2,851
  3,016
  3,189
  3,369
  3,559
  3,758
  3,966
  4,184
  4,414
  4,654
  4,906
Maintenance CAPEX, $m
  -139
  -152
  -164
  -177
  -191
  -205
  -219
  -235
  -250
  -267
  -284
  -302
  -320
  -339
  -359
  -380
  -402
  -425
  -449
  -474
  -500
  -527
  -555
  -585
  -616
  -649
  -683
  -718
  -756
  -795
New CAPEX, $m
  -161
  -161
  -168
  -174
  -181
  -188
  -196
  -203
  -212
  -220
  -229
  -238
  -248
  -259
  -270
  -282
  -294
  -307
  -321
  -335
  -350
  -367
  -383
  -401
  -420
  -440
  -461
  -483
  -506
  -530
Cash from investing activities, $m
  -300
  -313
  -332
  -351
  -372
  -393
  -415
  -438
  -462
  -487
  -513
  -540
  -568
  -598
  -629
  -662
  -696
  -732
  -770
  -809
  -850
  -894
  -938
  -986
  -1,036
  -1,089
  -1,144
  -1,201
  -1,262
  -1,325
Free cash flow, $m
  465
  527
  585
  646
  709
  775
  844
  915
  989
  1,067
  1,143
  1,227
  1,314
  1,405
  1,500
  1,599
  1,703
  1,811
  1,924
  2,042
  2,166
  2,295
  2,431
  2,573
  2,722
  2,877
  3,041
  3,212
  3,392
  3,581
Issuance/(repayment) of debt, $m
  533
  554
  576
  599
  622
  647
  672
  699
  727
  756
  787
  819
  853
  889
  927
  968
  1,010
  1,055
  1,102
  1,151
  1,204
  1,259
  1,317
  1,379
  1,443
  1,511
  1,583
  1,658
  1,738
  1,821
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  533
  554
  576
  599
  622
  647
  672
  699
  727
  756
  787
  819
  853
  889
  927
  968
  1,010
  1,055
  1,102
  1,151
  1,204
  1,259
  1,317
  1,379
  1,443
  1,511
  1,583
  1,658
  1,738
  1,821
Total cash flow (excl. dividends), $m
  998
  1,081
  1,161
  1,245
  1,332
  1,422
  1,516
  1,614
  1,716
  1,822
  1,930
  2,046
  2,167
  2,295
  2,428
  2,567
  2,713
  2,866
  3,026
  3,194
  3,370
  3,554
  3,748
  3,951
  4,165
  4,389
  4,624
  4,871
  5,130
  5,402
Retained Cash Flow (-), $m
  -83
  -87
  -91
  -94
  -98
  -102
  -106
  -110
  -114
  -119
  -124
  -129
  -134
  -140
  -146
  -152
  -159
  -166
  -173
  -181
  -189
  -198
  -207
  -217
  -227
  -238
  -249
  -261
  -274
  -287
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  915
  994
  1,071
  1,151
  1,234
  1,320
  1,410
  1,504
  1,602
  1,704
  1,806
  1,917
  2,033
  2,155
  2,282
  2,415
  2,554
  2,700
  2,852
  3,012
  3,180
  3,356
  3,541
  3,734
  3,938
  4,151
  4,375
  4,610
  4,856
  5,115
Discount rate, %
  8.70
  9.14
  9.59
  10.07
  10.57
  11.10
  11.66
  12.24
  12.85
  13.50
  14.17
  14.88
  15.62
  16.41
  17.23
  18.09
  18.99
  19.94
  20.94
  21.98
  23.08
  24.24
  25.45
  26.72
  28.06
  29.46
  30.93
  32.48
  34.11
  35.81
PV of cash for distribution, $m
  841
  834
  813
  784
  746
  702
  652
  597
  539
  480
  420
  363
  308
  257
  210
  169
  133
  102
  77
  57
  41
  28
  19
  13
  8
  5
  3
  2
  1
  1
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

CDW Corporation (CDW) is a provider of integrated information technology (IT) solutions in the United States, Canada and the United Kingdom. The Company's segments include Corporate, Public and Other. The Corporate segment consists of private sector business customers in the United States based on employee size between Medium/Large customers, which primarily includes organizations with more than 100 employees, and Small Business customers, which primarily includes organizations with up to 100 employees. Its Public segment comprises government agencies and education and healthcare institutions in the United States. Its Other segment includes Canada and CDW UK. The CDW Advanced Services business consists primarily of customized engineering services delivered by technology specialists and engineers, and managed services that include Infrastructure as a Service (IaaS) offerings. The Company has centralized logistics and headquarters functions that provide services to the segments.

FINANCIAL RATIOS  of  CDW Corporation (CDW)

Valuation Ratios
P/E Ratio 39.4
Price to Sales 1.2
Price to Book 16
Price to Tangible Book
Price to Cash Flow 27.7
Price to Free Cash Flow 30.9
Growth Rates
Sales Growth Rate 7.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -28.9%
Cap. Spend. - 3 Yr. Gr. Rate 6.4%
Financial Strength
Quick Ratio 14
Current Ratio 0
LT Debt to Equity 307.4%
Total Debt to Equity 309.2%
Interest Coverage 6
Management Effectiveness
Return On Assets 7.5%
Ret/ On Assets - 3 Yr. Avg. 7.1%
Return On Total Capital 9.8%
Ret/ On T. Cap. - 3 Yr. Avg. 8.5%
Return On Equity 39.6%
Return On Equity - 3 Yr. Avg. 36.3%
Asset Turnover 2
Profitability Ratios
Gross Margin 16.6%
Gross Margin - 3 Yr. Avg. 16.3%
EBITDA Margin 7.7%
EBITDA Margin - 3 Yr. Avg. 7.4%
Operating Margin 5.8%
Oper. Margin - 3 Yr. Avg. 5.4%
Pre-Tax Margin 4.8%
Pre-Tax Margin - 3 Yr. Avg. 4.3%
Net Profit Margin 3%
Net Profit Margin - 3 Yr. Avg. 2.7%
Effective Tax Rate 36.9%
Eff/ Tax Rate - 3 Yr. Avg. 37.2%
Payout Ratio 18.6%

CDW stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CDW stock intrinsic value calculation we used $16241 million for the last fiscal year's total revenue generated by CDW Corporation. The default revenue input number comes from 0001 income statement of CDW Corporation. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CDW stock valuation model: a) initial revenue growth rate of 8.6% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 8.7%, whose default value for CDW is calculated based on our internal credit rating of CDW Corporation, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of CDW Corporation.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CDW stock the variable cost ratio is equal to 91.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $420 million in the base year in the intrinsic value calculation for CDW stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for CDW Corporation.

Corporate tax rate of 27% is the nominal tax rate for CDW Corporation. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CDW stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for CDW are equal to 11.1%.

Life of production assets of 12.9 years is the average useful life of capital assets used in CDW Corporation operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CDW is equal to 5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $975.2 million for CDW Corporation - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 147.107 million for CDW Corporation is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of CDW Corporation at the current share price and the inputted number of shares is $15.3 billion.

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