“So Stan Druckenmiller had imposter syndrome for 15 years?”

“Yes. Maybe longer.”

Hard Lessons (Morgan Stanley, 2025)

October 11th, 2024. CDW Corporation. $221.69.

I pitched this for a university investment club application, with 18 minutes to spare. I had never built a DCF before. I attempted one the night I submitted and could not get it to work, so the valuation section went out incomplete. It was my first stock pitch.

Today the stock trades around $123. Down almost 45%, versus an S&P 500 that is up about 18% over the same period.

Here is my original pitch:

Finding CDW

It took me days to find the right company to pitch. I was screening for names between $5 billion and $30 billion in market cap, with defensible competitive positions, diversified revenue, and defining catalysts. The process was frustrating.

The Business

CDW stands for Computer Discount Warehouse. Founded in 1984 in Chicago. IPO’d in 1993. Taken private by Madison Dearborn Partners in 2007. Went public again in 2013. The company is headquartered in Vernon Hills, Illinois, and is a Fortune 500 member and constituent of the S&P 500.

CDW is the largest value-added reseller in North America, with about 5% share of a roughly $1.4 trillion IT market. The industry is deeply fragmented, thousands of resellers and solutions providers. The company sits between the vendors that make the products (Dell, HP, Cisco, Microsoft, and about 1,000 others) and the enterprises that buy them: corporations, hospitals, schools, and government agencies. They sell the hardware, license software, and provide IT services on top, to over 250,000 customers. The product catalogue alone is over 100,000 SKUs. But the value is not in the catalogue. A customer can buy a laptop from Dell directly. The reason they go through CDW is because CDW’s roughly 10,500 customer-facing employees (sellers, engineers, and technical specialists) help enterprises figure out what to buy, how to integrate it, and how to manage it across their entire IT stack. The company is vendor and consumption-model unbiased, meaning they are not pushing one OEM’s products over another. They recommend what fits the customer’s environment. That is what “value-added” means in the context of a VAR, and it is the reason CDW gets to keep a spread on products it did not manufacture.

CDW has four revenue segments. Corporate is the largest at about 42% of sales, serving large and medium-sized businesses. Public is about 39%, covering government, education, and healthcare (each of these US customer channels individually generates over $1.7 billion in annual revenue). Small Business is roughly 8%. UK and Canada make up the remaining 12%.

The model only works at scale. CDW’s vendor relationships are central to the economics. OEMs and software publishers use CDW to reach the hundreds of thousands of mid-market and public sector customers they would otherwise need their own salesforces to cover. In return, CDW gets access to cooperative advertising reimbursements, volume rebates, purchase incentives, and preferential pricing. The more CDW sells, the better terms it gets, the more competitive its pricing, and the harder it becomes for smaller VARs to match.

Citi highlighted this in a 2023 initiation, finding that CDW achieved the highest EBITDA per employee among its peers without having a materially different workforce structure. They did not hire more client-facing workers or have unusual vendor exposure. They just sold better.

More than half of CDW’s US net sales are generated by account managers with over seven years of tenure. The customer’s account manager knows their IT setup, procurement cycles, budget constraints, and can recommend solutions accordingly. It is not a transactional relationship in the way most people think about resellers.

My Pitch

My pitch had two arguments.

First, that CDW was a reliable compounder. Shares outstanding had declined 7.8% over five years from buybacks. Dividends had grown 16% annually. FCF per share was up 10.6% in 2023. The stock had outperformed the S&P 500’s ten-year return by 150%.

Second, that CDW had a dominant market position. 18.8% ROIC. Every competitor I compared it against had lower returns and heavier balance sheets.

Everything I saw was backwards looking. The ten year returns, the ROIC, the dividend growth.

I was describing a company, not making investment theses. I had no view on where estimates were going or even what consensus was. I was focusing on what CDW had already done, not on what was going to change and how investors would view the company a year or so out.

What Actually Happened

While I was pitching CDW at $222, the company was in the middle of eight straight quarters of revenue decline across 2023 and 2024. FY2024 net sales came in at $21 billion, a 1.8% decline YoY. Gross profit and net income fell 1.1% and 2.4% respectively. Enterprises pulled back on hardware budgets as inflation and high interest rates drove delayed purchase decisions.

The stock went from $222 to about $123 today. Down over 40% from the 2024 highs. Largest drawdown since the 2013 re-IPO.

The business did begin to recover. Q4 FY2024 marked the first quarter of positive revenue growth since 2022; $5.19 billion revenue up 3.3% YoY; +227M vs consensus. FY2025 at $22.4 billion, ~7% increase vs trough. Q4 FY2025 $5.5 billion net sales, up 6.3%, gross profit up 8.6% and gross margin expanded 50bps to 22.8%.

Small Business +18.4% in the fourth quarter on an ADS basis. Public +7% with Education up nearly 13% and Healthcare up about 5%. UK and Canada +8.4%. Corporate essentially flat Q4 at -0.6%. The large segment 42% of revenue is declining and the smaller ones support topline. Customers are being cautious with big hardware purchases, and the Windows 11 refresh cycle management expected would drive a ton of new hardware through CDW’s corporate channel has disappointed. They acknowledged that customers are “further along” in refresh cycles than expected. I have yet to meet someone that likes Windows 11 or Copilot, Microsoft is putting it in everything from paint to notepad. Customers are renewing software on existing machines instead of buying new.

It’s the margin picture that separates CDW from a simple “wait for the cycle to turn” situation. Operating margins peaked at ~9.5% at the end of 2024, and have since compressed to ~8.9%. Income grew only 2.6% despite topline growth of >7%. Operating income was basically flat, up just 0.3%. Net income declined 1.0%. SG&A grew 9.0% YoY, much more than the 6.8% revenue growth, as CDW invests in their services and advisory.

Street went from paying 32x earnings at the 2024 peak to 15x today. The 5-yr median is ~23x. This was the de-rating, as the earnings trajectory went from double-digits to low-single-digits.

The Structural Question

CDW is a middleman for hardware vendors selling into enterprise buyers. When enterprises move workloads to the cloud (Azure, AWS, GCP), they are not buying on-premises compute. A customer that moves its infrastructure off-premises is not coming back for servers when the spending cycle picks back up. The highest-volume, lowest-margin part of CDW’s business faces a secular headwind that exists in an up year or a down year of the IT cycle.

Citrini made a claim applicable to CDW: that trillions of dollars of enterprise value have been built on top of intermediation, on monetizing friction that exists because of a limitation of humans. The piece then makes the claim that any business model with friction as the reason for the business model, where the business sits between buyer and seller, is exposed as friction itself begins to erode. CDW sells technical value: integration, advisory, lifecycle management. The parts of the business that are purely transactional, where the value-add is the procurement, not the expertise, are most exposed to cloud migration, to direct vendor selling, and eventually: to AI-driven procurement tools that replicate the product-selection part of the function.

CDW has invested in repositioning the business towards cloud advisory, managed services, SaaS, and cybersecurity. You can see how far the shift in that direction has gotten by looking at how gross profit breaks down.

The software, cloud, and services side of the business is now 36% of gross profit, up from 33% two years ago. Cloud revenue is growing at a double-digit pace. Managed services revenue was up 10% with over 20% profit growth. Healthcare has been a solid contributor, with the sub-segment up nearly 30% in Q4 of FY2024. CDW has done 8 acquisitions in the last six years, most in managed services and solutions. Management views M&A as a supplement to organic growth of about 7%.

Whether the services ramp can offset the hardware erosion fast enough is the open question. SG&A is rising as a direct consequence of this investment, which is why margins are compressing even as revenue recovers. CDW is spending to become a different company, but that new mix hasn’t yet shown up as accretive.

Valuation

About 12x forward earnings with no acceleration priced in. EV/EBITDA around 10x. FCF yield is north of 6%. Reasonable dividend yield at roughly 2%, with 12 consecutive years of increases and a 25% payout ratio on adjusted earnings. CDW still generates over $1 billion a year in FCF and returns most of it through buybacks and dividends.

Consensus FY2026 EPS at $10.39, up 3.7% YoY. Revenue at $23.1 billion, up about 3%. Management guiding to low-single-digit gross profit growth and mid-single-digit EPS growth. 81% of analyst revisions this year have been downward. 3-year revenue CAGR is -1.89%. 3-year EPS CAGR is -0.21%.

Against peers, CDW trades at a slight premium to Arrow (ARW) and TD SYNNEX on forward P/E, a function of higher margins and a growing services mix. Insight is the cheapest at 8x. TD SYNNEX is nearly three times the size of CDW at $63 billion in revenue. On EV/Sales, CDW trades at 1.0x versus 0.2 to 0.5x for pure distributors, a function of having a higher-margin services contribution.

5 year median multiple of about 23x. To get back there CDW would need earnings growth in the low-to-mid teens, current trajectory mid-single digits at best. If the stock drifted to the high $90s or low $100s, you would be looking at a single-digit earnings multiple with a high-single-digit FCF yield.

Bear and Bull

The bear case: Corporate stays weak. Tariffs on China-manufactured hardware push prices up 10 to 25% and dent demand once existing inventory runs out. Approximately $50 million of Q4 sales were pulled forward as customers looked to accelerate orders ahead of price increases. The services mix shift stalls and CDW reverts to looking like a traditional hardware distributor. Total debt at year end stood at $5.6 billion. There has been some serious selling by insiders. The CEO sold approximately 41,000 shares in May 2025, along with additional sales by other NEOs; and since August 2024, there has been virtually no additional insider purchases.

The bull case: If IT spending recovers; CDW has bounced back sharply from past downturns, posting a 16% sales CAGR from 2009 to 2011. Cloud and managed services continue to grow at double-digit rates. Healthcare IT is a tailwind, with the sub-segment up nearly 30% in Q4 of FY2024. If software multiples continue to fall, CDW will be able to acquire service-based businesses at lower multiples. With a 25% payout ratio, room exists for both share repurchases and acquisition activity. At 12x forward earnings with a 6%+ FCF yield, a lot of the decline is already realized in the price, and if growth stabilizes in the mid-single digits, there probably is not much downside left from here.

I still wouldn’t touch it. Margins are being compressed, the core hardware business is contracting, and the transition to services has not yet produced earnings growth.

But I get why the stock is down 45%. That is more than I could have said 18 months ago.

What I Took Away From This

A pitch using historical numbers is not a pitch. ROIC, historical returns, historical dividend growth. All those are embedded in the price. I wasted time presenting CDW’s 150% outperformance against the S&P, 16% annual dividend growth, and 18.8% ROIC. Those factors did nothing to explain what came next. The real question is how something new will compare to what is already embedded in the price. I told the audience what CDW had done. I never addressed what was going to change or why the market had it wrong.

CDW was mid-contraction when I pitched it long. Eight consecutive quarters of declining revenue. I should have asked myself whether the growth I was referencing was ahead of CDW or behind it, (it was behind it).

I know the bear case better now. I noted weaknesses in the U.K., and geographic execution issues. The risks I failed to note or adequately weigh were the IT spending cycle, margin compression due to the services transition, tariffs on hardware, and cloud replacing the middleman model. I either did not take these into consideration or I did not give adequate weight to them.

I learned more reviewing this pitch than I did creating it. More to come.

I do not hold a position in CDW. All views are my own.