ANIXTER INTL AXE

Mar 09, 2007

Anixter International Inc. is beating the market by 14.3% and the best may be yet to come. The Zacks #1 Rank stock has consistently delivered positive quarterly earnings surprises and the company has reaffirmed its ability to generate solid sales growth in the face of fluctuating commodity prices. This strong earnings momentum has allowed the stock to generate a year-to-date return of 12.4%.

Background

Anixter International Inc. is a leading global distributor of communication products used in building enterprise and service provider data, voice and video networks. In addition, Anixter is a leading distributor of specialty wire and cable products to original equipment manufacturers and to industrial companies for maintenance and repair operations.

Full Analysis

Strong copper prices and a favorable tax bill allowed Anixter to report record sales and earnings in the fourth quarter. The company reported earnings per share of $1.10 on Jan 30, up from 67 cents in the year-ago period. Earnings surpassed analyst expectations by 1.85%, marking the ninth consecutive positive earnings surprise. In addition, revenues rose 21% to $1.30 billion, above expectations of $1.28 billion. Anixter?s full-year operating earnings were just as impressive, growing 77% on a year-over-year basis. Operating margins improved as well, rising to 6.8% from 4.9% the prior year.

The company forecasted 2007 sales growth of between 8% and 12%, despite an expected decrease in copper prices. Perhaps as testament to the confidence of management, on Feb 12 Anixter announced a $110 million stock buyback, financed by a $250 million convertible senior note offering.

Prior to the earnings announcement, analysts increased their 2007 profit projections by 13 cents. After the latest earnings reports, all of the covering analysts raised their estimates again by an additional 27 cents.

These positive revisions have helped AXE generate a year-to-date return of 12.4%, handily beating the S&P 500 return of ?1.9%. In fact, over the last three years, the company?s track record of earnings surprises has enabled it to outperform the S&P 500 by an average of 20.3%.

On Feb 20, AXE broke through technical resistance and rapidly rose to a record high of $63.30 on strong volume. While AXE subsequently declined with the overall market, it found support against the 21-day moving average. The stock has since rebounded and looks ready to test its 52-week high in the coming days. Look for any upside breakout as confirmation of continued positive momentum.