Anixter International Inc. (AXE, Financial) is a distributor of enterprise cabling and security solutions, electrical and electronic wire and cable products, and OEM supplies. The company is chaired by Sam Zell, the billionaire best known for his real estate business Equity Residential.
After Zell, the next largest shareholder is Ariel Investments, LLC - John Rogers (Trades, Portfolio) - who added heavily to his position last quarter, bringing his total shares to 2.23 million.
Ariel Investments manages over $8 billion of mutual fund money, with the majority in Ariel Appreciation Fund (CAAPX, Financial). Sadly, this fund has not outperformed the S&P 500 over any 1, 5, or 10 year periods, so buying CAAPX would be foolish, but buying this stock may not.
For one, it’s down north of 20% since Rogers first bought in around $78 per share. Secondly, given the company’s solid economic moat and the future need for more communications infrastructure, AXE looks attractive under $65.
Anixter has 230 sales offices offering over 400,000 products. The company generates 69% of sales from North America, 18% from Europe, and 13% from emerging markets.
From a numbers standpoint, since 2005, the company has maintained a pretty steady march upwards in both revenue and earnings per share. Book value has also risen from $17.86 to $33.53 helped in part by share repurchases.
The two negatives are the low operating margins and the total debt they’ve incurred to finance past acquisitions, like Tri-Ed, a leading distributor of security components in North America. Yet, this has only strengthened their position in the market and should boost book value above $40 a share in the next few years.
The fair value estimate across the board from Valueline, Morningstar, to GuruFocus is for the stock to be in the $75 to $100 range. The average P/E for AXE is 16.5 and P/B is 2.2, and for it to outpace the S&P, I think the stock would need to see $104 by 2020. That would mean that the EPS is around $6.55 at the average multiple.
The company is dependent on telecom spending, and any major changes in spending patterns would likely have a direct impact on the company. More importantly, considering what’s happening in the Eurozone, roughly 35% of AXE’s sales are in foreign currency (i.e. euros).
If Sam Zell or John Rogers (Trades, Portfolio) were not attached to this company, I may be skeptical about its future. Yet, with a bear market inevitably coming, AXE has a good chance of weathering the storm and even continuing to pound out cash.
