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Wall Street to Anixter: Put Up or Shut Up

The lucrative networking industry has furnished

Anixter International

(AXE:NYSE) every opportunity for success. Now it's time to deliver.

On Friday shares closed at 15 1/4, down 1/8, near the low end of their 52-week trading range of 12 5/8 to 20. Anixter, which trades at 21 times 12 months trailing earnings, on Monday releases its numbers for the fourth quarter ended Jan. 3.

First Call

predicts 20 cents per share, compared with 22 cents a year earlier.

Those flat earnings and sagging share price raise ticklish questions about the viability of this "value-added" distributor, which sells networking hardware to corporate customers. Although it has seemed to land at the right place at the right time, the reseller has yet to find the right niche in the booming sector.

As the networking business continues to build its revenue stream at a frantic clip, Anixter may yet regain its momentum. But Wall Street has grown impatient waiting for the long-promised turnaround. For many investors, it's


time: Now or Never.

To that end, Anixter has recently landed contracts with some of the smaller, faster-growing suppliers such as

Fore Systems

(FORE:Nasdaq). In addition, struggling


(SHVA:Nasdaq), aiming to trim costs, is also expanding business with Anixter.

But to many customers, Anixter's profile remains low -- it did not appear at the popular


industry conference in Washington, D.C., this week. Two industry insiders say Anixter does not have the know-how to add value for customers in quest of a one-stop shop.

And at least one institutional investor has lost patience with Anixter's promise of future returns. Keith Ambs, president of

Ambs Investment Counsel

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, said his investment firm sold all its Anixter shares in the second half of 1996. He declined to comment further. According to


, Ambs owned 170,000 shares -- an 0.32% stake -- as of June 30.

Still, the strength of the networking reseller business has prompted

Montgomery Securities


GS2 Securities

to slap a buy rating on Anixter. (Neither firm has done underwriting for the company.) Perhaps anticipating the growth in networking, real estate financier Sam Zell bought the company from the Anixter family in 1986. While Zell remains chairman, a company spokesman said he keeps his hands off the day-to-day operations.

The pell-mell industry expansion and those stamps of approval from the pros make Anixter's financial record all the more unsettling. In the third quarter, the company had revenue of $631.5 million, up from $571.1 million a year before. Net income was $8.6 million, or 18 cents per share, slipping from $9.1 million, or 17 cents per share (the number of average shares shrunk in that period).

To keep the rich networking profits from passing it by, Anixter is deploying a newly specialized sales force (which recently expanded into Latin America and Asia). That effort to retool, say company officials, it what nixed the earnings last year. And the best is yet to come, they say. But in this market, technology-minded bulls are not very patient.

Anixter is perhaps best-known as a reseller of routers, switches, hubs and other skeletal components of computer networks. While the company says it is expanding its nonsales advisory services, critics charge that Anixter essentially runs a conveyor belt of hardware manufactured by companies like

Bay Networks

(BAY:NYSE) and


(COMS:Nasdaq) before Fortune 1000 companies.

So far, a little less than half of Anixter's revenue derives from network hardware itself. The company also distributes cabling, connectors and related instruments.

Domestically, Cisco, the mighty supplier of routers, is starting to sell more through resellers. But with its gold-plated brand name, surely Cisco opens more doors than Anixter. So far Cisco has done some business with Anixter, but not much.

"Not everyone buys Cisco products," Anixter spokesman Kirk Brewer says, stressing that Anixter provides a sweeping array of products and advisory services as well.

John Grangaard, analyst at GS2 Securities in Milwaukee, predicts that Anixter will show robust growth in 1997, given its new toeholds in overseas markets. But he was forced to lower his earnings estimates for 1996 after disappointments in the first three quarters.

By Kevin Petrie