On Thursday, Citi maintained a Buy rating on CDW Corporation (NASDAQ:CDW) and raised its price target to $295 from $255. The revision reflects a growing confidence in the company's service revenue prospects, particularly in AI-related services. CDW's recent intra-quarter commentary has indicated a positive trend in AI services demand, such as Co-pilot consulting and workshops, as more organizations are seeking assistance with AI use cases. This trend positions CDW advantageously as plans for AI deployment progress.
The firm anticipates that a potential recovery in PC and infrastructure in the second half of 2024 could temporarily affect margins. However, CDW is expected to benefit from higher-margin configurations on hardware sales and a shift towards more lucrative services and solutions. Moreover, the potential for earnings growth through acquisitions, which is not currently factored into forecasts, is also seen as a positive driver.
Citi has adjusted its FY25 earnings per share (EPS) estimate for CDW upward to $12.50 and applied a higher earnings multiple of 24x, up from the previous 22x. This change is based on the expectation of increased IT spending in the AI sector. The firm's new price target of $295 reflects this enhanced optimism.
The analyst from Citi also notes that CDW is well-positioned to capitalize on the expanding AI total addressable market (TAM) through its value-added offerings. The company is likely to continue benefiting from the shift towards solutions and services that contribute to higher margins in the upcoming quarters.
Additionally, reports from industry peers suggest improvements in hardware demand, which is expected to lead to positive revisions in estimates and share performance for CDW.
InvestingPro Insights
In light of Citi's optimistic outlook on CDW Corporation (NASDAQ:CDW), it's worth considering additional insights that could further inform investor perspectives. According to recent InvestingPro data, CDW has a market capitalization of $34.33 billion and a P/E ratio of 29.49 based on the last twelve months as of Q4 2023. Despite a revenue decline of 9.99% over the same period, the company has demonstrated a robust gross profit margin of 21.76%. Additionally, CDW's stock has been performing well, with a 3-month price total return of 19.21% and a 6-month return of 25.18%, indicating strong recent growth.
InvestingPro Tips reveal that CDW has raised its dividend for 12 consecutive years, showcasing a commitment to returning value to shareholders. Furthermore, the company is recognized as a prominent player in the Electronic Equipment, Instruments & Components industry. For investors looking to delve deeper, there are additional InvestingPro Tips available that could provide a more nuanced view of CDW's performance and outlook. For those interested in expanding their investment strategies with these insights, InvestingPro offers a range of tips, and by using the coupon code PRONEWS24, investors can receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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