For five quarters in a row, computer vendor CDW (NASDAQ:CDWC) has put Wall Street's best analysts to shame, beating their estimates back and forth. Regardless, the Street remains remarkably ambivalent about the stock (in contrast to the Fool's own Tom Gardner, who recommended it twice to readers of the Fool's Stock Advisor newsletter).

What analysts say:

  • Buy, sell, or waffle? The analysts following CDW number an unlucky 13, and only three of them think the stock's a buy at today's price. All the rest say hold.
  • Revenues. When CDW reports its fiscal Q2 2006 numbers tomorrow morning, analysts will be looking for at least 7% sales growth, to $1.65 billion.
  • Earnings. But they also expect a 1% decline in profits to $0.79 per share.

What management says:
In the firm's last earnings report, CEO John Edwardson characterized first-quarter performance as "solid," citing its profitable growth, continued balance-sheet strength, and the shareholder-friendly move of "returning $128 million to shareholders through share repurchases."

What management does:
At first glance, at least one of those statements looks suspect. It's true that CDW remained profitable while growing its revenues last quarter, but the 4.2% increase in profitability didn't quite match the 7.7% increase in sales. But last year, CDW wasn't required to expense its stock options grants; this year, it was. The $0.03 per share worth of profits lost to expensing, if added back to the end-of-quarter kitty, would have put profits growth at 8.3%, slightly outpacing sales growth.

That said, it's worth noting that despite a slight widening in gross margins, operating profits are falling, depressed by operating costs that have risen at more than twice the rate of sales gains over the last six months. Although net margins have held up well, the operational weakness may help explain why CDW's stock price has lagged the S&P significantly in recent months.

Margins %

12/04

3/05

6/05

9/05

12/05

3/06

Gross

15.2

15.2

15.2

15.2

15.4

15.5

Op.

6.9

6.8

6.8

6.7

6.7

6.6

Net

4.2

4.2

4.2

4.3

4.3

4.3
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
It also helps to explain why Wall Street analysts remain decidedly unenthused by the stock. Meanwhile, back at Fool HQ, Tom Gardner continues to swim against the short-term-thinking tide, arguing that CDW will prove a market-beater in the long run. Echoing Edwardson's assertion that a strong balance sheet will carry the firm through recent market weakness, Tom believes that modest growth in the current rate of cash profits generation (roughly $270 million per annum) will justify valuing this firm at 250% its current price in five years' time.

Want to know more about why Tom likes the stock? The details are yours for the perusing, free of charge, just for taking a trial run of the Stock Advisor service. Click here for full access.

Want a second opinion on the stock? Hey, this is the Fool -- we've got a million opinions, and nearly as many analysts willing to back them up. Read Stephen Simpson's review of CDW's Q1 2006 report and see what he thinks.

Competitors

  • Amazon.com (NASDAQ:AMZN)
  • Apple (NASDAQ:AAPL)
  • Best Buy (NYSE:BBY)
  • Circuit City (NYSE:CC)
  • Dell (NASDAQ:DELL)
  • Hewlett-Packard (NYSE:HPQ)

Amazon and Best Buy are also Stock Advisor recommendations. Dell is a Stock Advisor and Inside Value pick.

Fool contributorRich Smithowns shares of Dell. The Fool has an ironclad disclosure policy.