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Anixter International Inc. (NYSE:AXE) is a Fortune 500 company that enjoys a good business model, able management, and a relatively good balance sheet. The company has grown steadily over the years and should continue to do so, as long as it can continue to acquire leading companies and maintain its high standards of customer service.

1. Business Model

Anixter International offers a durable competitive advantage to its investors owing to its relatively large size, good management, frequent acquisitions and world class customer service.

Anixter is a leading distributor of enterprise cabling, electronic wire and other similar products. Its business model entails lowering customers' supply chain costs, while providing great value and service.

The company offers 3 types of products: Enterprise Cabling and Security Solutions, Electrical and Electronic Wire and Cable, and OEM Supply. The company's goal is to achieve "organic growth" through constant expansion of its product offerings. The company also attempts to lower the customer's cost of procuring these services through an online market for all its products.

To further strengthen its business model, the company has developed close relationships with certain freight, package delivery and courier services to minimize transit times. These delivery partnerships allow Anixter to provide a high level of customer service.

Some of the factors that strengthen Anixter's Business Model

a. Customer Service

The company provides a range of technical services to make the customer experience better. Since the company has greater cash reserves than many of its competitors, it uses those resources to improve the customer service and gain customer loyalty.

For instance, the company's Wire and Cable segment offers engineering support as well as supply chain management services that present the company as a specialist in high-growth emerging markets.

The OEM Supply's engineers and supply chain experts specialize in problem resolution, design support, and process re-engineering. These resources help the company support customers around the globe.

According to an IBM Project Support Specialist, "Anixter's customer service is heavily influenced by the needs of its customers. Anixter has made an investment in its customer service team. The team demonstrates attributes of knowledge of product and out-of-box thinking to assist with their customers' priorities."

With its world-class customer support, the company gains a huge edge over its competitors. Such attributes help a company survive in the long term and allow it to charge premium prices for its products.

b. Competition

The company has many competitors but none with the resources such as Anixter's. The industry is highly fragmented with different distributors selling only a few products. That allows Anixter to differentiate itself by creating a uniform market for a variety of products and services.

For instance, the company gains its competitive advantage from the proprietary computer systems, which connect all its warehouses and sales offices in the world. These systems help in sales support, order entry, inventory status, order tracking, and material management. This system helps the company ease the process of placing orders, while lowering costs. Since most competitors of the business are smaller distributors with fewer resources, this system gives the company a huge advantage.

The competition in the industry is based on the provision of a greater breadth of products, services and geographical proximity. The company has significant competitive advantage due to its competitive product and service offerings, high skilled workforce and global distribution network.

c. Acquisitions

Acquisitions help Anixter grow its competitive advantage. The company has a strong focus on acquisitions where the benefits associated with geographic expansion, market penetration or new product line additions are favorable and help the company maintain its leadership.

Case in point is the acquisition of Jorvex, S.A. in mid 2012. "Jorvex, based in Lima, Peru, is a leading distributor of electrical wire and cable products to commercial, industrial and government entities throughout Peru, with major distribution centers in Lima, Arequipa and Chiclayo." Jorvex would help Anixter grow and solidify its business in the Andean region, allowing for lower competition.

As long as Anixter can continue to acquire smaller, but leading distributors like Jorvex, it will do a good job of keeping the competition away and growing its business with certainty.

2. Management

The management of the company is well experienced. The board features a billionaire investor who's been with the company for almost three decades.

Robert J. Eck, CEO, has been with the company since 1989, serving in varied roles. Samuel Zell, billionaire investor, has been the Chairman of the Board of Directors of the company since 1985. Last checked, Samuel Zell owned 14% of the company in 2008.

The management certainly has the maturity and experience to maintain its competitive advantages and help the company gain greater market share internationally.

3. Cash Reserves

The company has a very good Current Ratio at 2.53. Based on the 2012 Financial Report, its Current Assets were at $2.45 billion while the Current Liabilities were at $967 million. This inspires confidence that the company is focused on managing its working capital and on planning for the long term.

The long-term debt-to-equity ratio at the company is close to 1, but could have been better. The company aspires for a long-term debt-to-total-capital ratio of 45-50%, and if it is lower than that, it would willfully pay dividends. The company has paid such dividends in two of the last three years. In addition, the company has been passionately repurchasing its stock. It has done so in each of the last three years.

Considering that the debt-to-equity ratio is not particularly low, it seems too optimistic a decision to be buying back shares and returning capital at the same time. For instance, between end of year 2011 and end of year 2012, the total Liabilities rose $87 million, while the Equity fell $31 million.

Even though the Working Capital seems very good, the Debt to Equity is ordinary and the management has set itself a low target. Long-term investors (those who wish to hold the stock for the foreseeable future) like to see lower debts on the balance sheet.

Regardless, the company's financial position still seems relatively good, and long-term investors are advised to purchase this stock. Since the company has a good business model, and management is still conscious of the need for high working capital, the going should continue to be good for the company.

4. Stock Price

The company's PE ratio of 21.5 makes it seem relatively cheap in light of the good business fundamentals of the company. Compared with the S&P 500 mean PE ratio of 18.29, it seems only slightly expensive.

Long-term investors would do well for themselves by buying this stock.

Conclusion

Anixter International is definitely a "BUY" for long-term investors. The company has the potential to grow internationally due to its vast product range, absence of large competitors, good customer service, able management, and good cash management.

Source: Anixter's Competitive Advantage: World-Class Customer Service