CDW Comes Back to Market

CDW Comes Back to Market

Just over six years after leaving the public stock markets in a $7.3 billion leveraged buyout, IT equipment supplier CDW is back on the Nasdaq again!

CDW blazed back into the public markets Thursday, arriving on the Nasdaq at an IPO offer price of $17 per share, and quickly ran up to $18.37 by close of trading -- a one-day, 8.1% gain. But could there be more in store?

So far, free financial data sites such as Yahoo! Finance are still working to update their data pages and produce some useful information on CDW stock. But even at this early hour, we can tell you a little bit about the new (and improved?) CDW -- and give you a better idea of whether the stock might be worth buying.

Here, then, is what we know about the now-IPO'ed CDW, based on what it's filed in its IPO prospectus.

CDW aimed to float 23.25 million shares Thursday, with the possibility of floating an additional 3.49 million shares in the event the IPO's underwriters opted to take "overallotments" of stock, to meet heightened demand. Based on the stock's quick run-up, it appears this demand was present, and so it's probably safe to assume there are now about 26.74 million or so CDW shares floating around out there -- close to 16% of all shares outstanding at the company.

Gross proceeds from the IPO, at $17 a share, should work out to about $454 million raised for CDW. Of this amount, the company said it intended to spend about $331 million paying down debt it's racked up. A further $24.4 million will be paid out to the company's private equity owners, Madison Dearborn Partners and Providence Equity Partners, as "a one-time payment to affiliates of the Sponsors in connection with the termination of our management services agreement with such entities."

The market cap
According to its prospectus, CDW went public with an anticipated 168.5 million shares outstanding. At Thursday's closing price, the stock now carries a market capitalization of just under $3.1 billion. That's less than half the price the private equity folks took it private for back in 2007.

The valuation
CDW's prospectus reveals that in 2012, the company recorded $10.1 billion in sales and earned $119 million in net income thereon. Thus, CDW went public at a price-to-sales ratio of 0.3, and at a P/E ratio of 26. That's a bit cheaper, on a price-to-sales basis, than the valuation on a similar company such as Dell , which is currently in the process of trying to go private itself. On the other hand, CDW's P/E ratio (26) suggests it's more expensive on that basis.

However, on the third hand, free cash flow at CDW is sufficiently strong -- in fact, more than twice net earnings -- to suggest a price-to-free cash flow ratio of only 11.2.

In short, CDW stock appears today to carry a valuation pretty similar to that of Dell -- and a similar business model as well. Whether it's a better value than Dell, and deserves your investment, really depends on whether CDW can outgrow the 6% earnings growth pace analysts are expecting from Dell. We don't know the answer to that question yet ... but at least now you know a bit more about the price Mr. Market is asking you to pay.

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