Is Anixter International Inc (NYSE:AXE) A Financially Sound Company?
Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Anixter International Inc (NYSE:AXE) with a market-capitalization of US$2.1b, rarely draw their attention. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. This article will examine AXE’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into AXE here.
See our latest analysis for Anixter International
How much cash does AXE generate through its operations?
AXE’s debt level has been constant at around US$1.3b over the previous year comprising of short- and long-term debt. At this stable level of debt, AXE currently has US$110m remaining in cash and short-term investments , ready to deploy into the business. On top of this, AXE has produced cash from operations of US$116m during the same period of time, leading to an operating cash to total debt ratio of 8.7%, meaning that AXE’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In AXE’s case, it is able to generate 0.087x cash from its debt capital.
Does AXE’s liquid assets cover its short-term commitments?
Looking at AXE’s most recent US$1.8b liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.65x. Generally, for Electronic companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is AXE’s debt level acceptable?
With debt reaching 89% of equity, AXE may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether AXE is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In AXE’s, case, the ratio of 4.33x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as AXE’s high interest coverage is seen as responsible and safe practice.
Next Steps:
AXE’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how AXE has been performing in the past. You should continue to research Anixter International to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for AXE’s future growth? Take a look at our free research report of analyst consensus for AXE’s outlook.
Valuation: What is AXE worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether AXE is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
