CDW (CDW): 41% ROE, 6.3% FCF yield, and a 16x P/E
CDW clears the three hard gates with three straight fiscal years above 15% ROE, positive free cash flow, and a discounted P/E, while leverage and a December 2026 debt maturity remain the key watch items.
The Pick
CDW Corporation (Nasdaq: CDW) is this week's candidate. CDW is an information-technology solutions provider that helps businesses, governments, schools, and healthcare organizations select, buy, integrate, and manage hardware, software, and services. It is a distributor, but the higher-value part of the model is the sales engineering, configuration, and managed-solution layer around the products. 1
The valuation snapshot uses the July 24 closing price of $133.82. At that price CDW had a $17.10 billion market cap, a 16.28x trailing P/E, and a 52-week range of $97.12 to $183.66. MarketWatch showed a $132.00 premarket quote on July 27, so the multiples will move with the stock. 23
The setup is straightforward: a cash-generative IT intermediary whose sales have resumed growth, trading at a much lower earnings multiple than its own recent history. The counterweight is equally clear: CDW carries meaningful debt, its margins have eased, and the free-cash-flow trend is not a straight line.
Scope note: This is a verified qualified candidate based on the current US listed-company screen and the cited peer checks. The available public data pages did not expose a reproducible complete-universe export using identical ROE, FCF, and valuation definitions, so this article should not be read as proof that CDW was the only US qualifier.
Screen Check
The fiscal-year ROE figures below use the labeled ROE series reported by StockAnalysis, which uses average shareholder equity for the annual calculation. TTM means the twelve months ended March 31, 2026. FCF is operating cash flow less capital expenditures, using the same financial-data series throughout. 45
| Hard gate | Evidence | Result |
|---|---|---|
| ROE above 15% in each of the last 3 fiscal years | FY2023 60.58%; FY2024 49.04%; FY2025 43.02%; TTM 41.74% | Pass |
| Positive free cash flow | FY2023 $1.451B; FY2024 $1.155B; FY2025 $1.088B; TTM $1.076B | Pass |
| Reasonable valuation | 16.28x trailing P/E; 12.21x forward P/E; 11.53x EV/EBITDA; 6.30% FCF yield | Pass, with leverage and growth caveats |
This is a wide ROE pass, but the high percentage needs context. CDW has reduced its equity base through buybacks and has substantial goodwill and intangible assets, so ROE is not the same thing as a 40% return on an unlevered operating business. The gate is still met; the capital structure is why the rest of the article matters.
Valuation
CDW's current 16.28x P/E is below each of the five completed fiscal-year snapshots shown on its ratio history: 29.09x in FY2021, 21.97x in FY2022, 28.06x in FY2023, 21.84x in FY2024, and 16.86x in FY2025. Their simple average is 23.56x, putting the current multiple about 31% below that five-year snapshot average. The current forward P/E of 12.21x is also below the corresponding five-year average of about 18.99x. 4
The peer comparison is more useful than the historical comparison alone. Two listed US IT-solution resellers provide directional anchors:
| Company | Trailing P/E | Forward P/E | EV/EBITDA | FCF yield |
|---|---|---|---|---|
| CDW | 16.28x | 12.21x | 11.53x | 6.30% |
| Insight Enterprises (NSIT) | 20.57x | 10.14x | 10.63x | 6.61% |
| ePlus (PLUS) | 17.69x | 16.70x | 10.48x | negative TTM FCF |
CDW's trailing P/E is below both peer anchors, while its EV/EBITDA is about 9% above the two-peer median of 10.56x. That is a reasonable valuation, not a free option. CDW's 6.70x price-to-book ratio looks high, but book equity is only $2.56 billion after years of buybacks and includes the effect of acquired intangibles; P/B is a weak standalone measure for this business. The PEG ratio is 1.65x, which is consistent with a mature, mid-single-digit revenue-growth profile rather than a high-growth software multiple. 267
Business Quality
CDW sits between technology manufacturers and end customers. It sources products from vendors and distributors, then adds selection, financing, configuration, integration, and technical support. Its 2025 revenue mix was still hardware-heavy: $16.071B, or 71.6% of sales, versus $4.203B of software and $2.036B of services. That mix creates lower gross margins than a pure software company, but it also gives CDW a broad customer relationship and many chances to attach higher-value services. 1
The company's advantage is scale and execution rather than proprietary technology. CDW has a large customer-facing sales and engineering organization, vendor-neutral product selection, distribution capacity, and relationships spanning corporate, government, education, and healthcare buyers. It competes with other resellers, manufacturers that sell directly, system integrators, cloud providers, hyperscaler marketplaces, e-commerce companies, and smaller regional value-added resellers. That is a broad competitive field, so the moat is convenience, breadth, and trusted execution rather than exclusivity. 1
Earnings and Cash Flow
The three-year financial trend shows recovery in sales but not yet a clean earnings acceleration:
| Fiscal year | Revenue | Net income | Operating margin | Net margin | FCF |
|---|---|---|---|---|---|
| 2023 | $21.376B | $1.104B | 7.86% | 5.17% | $1.451B |
| 2024 | $20.999B | $1.078B | 7.86% | 5.13% | $1.155B |
| 2025 | $22.424B | $1.067B | 7.38% | 4.76% | $1.088B |
| TTM to Mar. 31, 2026 | $22.905B | $1.077B | 7.29% | 4.70% | $1.076B |
Revenue rose 6.8% in 2025 and 7.4% on a TTM basis, but net income has stayed close to $1.1 billion and FCF has fallen 25.8% from 2023 to 2025. The positive read is that TTM FCF increased 7.1% from FY2025 as sales recovered. The negative read is that the cash-flow improvement is only a stabilization until the next full year confirms it. 58
The latest reported quarter, Q1 2026, was better on demand: revenue was $5.680B, up 9.2% year over year, operating income was $376.0M, up 4.0%, and net income was $235.4M, up 4.7%. Q1 operating cash flow was $274.8M and capital spending was $26.4M. The margin gap is worth watching: sales grew faster than operating income. 9
Balance Sheet and Risks
The balance sheet is serviceable, not conservative:
| Measure | Latest reading |
|---|---|
| Cash and equivalents | $578.6M |
| Total debt | $5.79B |
| Net debt | $5.21B |
| Current ratio | 1.16x |
| Debt/equity | 2.41x |
| Interest coverage | 7.40x |
| TTM FCF / market cap | 6.30% |
The Q1 filing shows a $1.006B current maturity due in December 2026. The remaining senior notes mature from 2028 through 2034, and CDW said it was in compliance with its debt covenants and could borrow up to $1.9B under the revolver at March 31. The near-term test is refinancing or repaying the 2026 maturity without allowing net debt to rise while FCF is still recovering. 910
Three risks deserve explicit monitoring:
- Cash conversion and margins. FCF fell from $1.451B in FY2023 to $1.088B in FY2025. A TTM figure below roughly $1.0B, or another year of operating-margin decline below 7%, would weaken the valuation case because the stock's appeal depends on cash generation rather than top-line growth alone. 5
- Debt and refinancing. The $1.006B December 2026 maturity is the concrete balance-sheet event. Watch net debt, interest coverage, and the cash balance when the company reports Q2 and Q3. A materially higher refinancing cost or a debt-funded shareholder-return program would make the 2.41x debt/equity ratio more consequential. 9
- Regulatory and competitive exposure. CDW disclosed an unresolved Department of Justice Civil Investigative Demand concerning bids for contracts supported by the federal E-Rate program. The company said it could not assess the outcome or financial impact as of March 31. Any reserve, enforcement action, or material contract restriction would change the thesis. Separately, direct vendor sales, cloud marketplaces, AI-related supply constraints, and cybersecurity incidents can pressure margins and working capital. 19
Short interest was 9.78 million shares, or 7.69% of float, in the July 15 MarketWatch snapshot. Insider ownership was 0.26% in the StockAnalysis snapshot. Yahoo's insider roster showed two director award transactions on July 1 totaling 437 shares, with no cash value reported; that is routine compensation activity, not evidence of open-market buying. 2311
Catalyst and Verdict
The next scheduled catalyst is CDW's Q2 2026 earnings report on August 5 before market open. The current analyst snapshot has a Buy consensus from 10 analysts and an average price target of $152.56, or 14.0% above the July 24 close. That target is an external opinion, not a forecast to underwrite, but the Q2 report can test whether the Q1 sales rebound is translating into operating leverage. 212
The base case is modest: the forecast calls for 2026 revenue of $23.57B, up 5.1%, and adjusted EPS of $10.76, up 7.4%. CDW also pays a $2.52 annual dividend, a 1.88% yield at the July 24 close, with a 30.6% payout ratio. The catalyst is not a new product launch; it is evidence that corporate and public-sector IT demand can keep sales growing while margins stabilize and debt comes down. 212
CDW is this week's pick because it clears the hard gates with room to spare: three straight fiscal years above 15% ROE, positive FCF in every listed period, and a trailing P/E below its own recent average and the two-peer P/E anchors. The trade-off is not hidden: the business is low-margin, leverage is material, FCF has declined from its 2023 peak, and the DOJ inquiry remains unresolved. The screen stays intact while TTM FCF remains positive and near $1.0B or better, the December 2026 maturity is handled without a debt spike, and operating margin stops drifting lower. A buyer should revisit those three points after the August 5 earnings release before taking a position.
This is a quantitative screening article, not financial advice. Valuation and operating figures are snapshots and should be rechecked before trading.
References
- 1CDW 2025 Form 10-K
sec.gov
- 2CDW valuation and statistics
stockanalysis.com
- 3CDW quote and 52-week range
marketwatch.com
- 4CDW financial ratios
stockanalysis.com
- 5CDW cash-flow statement
stockanalysis.com
- 6Insight Enterprises valuation
stockanalysis.com
- 7ePlus valuation
stockanalysis.com
- 8CDW financials overview
stockanalysis.com
- 9CDW Q1 2026 Form 10-Q
sec.gov
- 10CDW balance sheet
stockanalysis.com
- 11CDW insider roster
finance.yahoo.com
- 12CDW analyst forecast
stockanalysis.com
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