On Jul 23, 2013, we downgraded our recommendation on
The Middleby Corporation
) to Neutral from Outperform, based on the company's over
dependence on food processing units.
Why the Downgrade?
Middleby is over dependent on the expenditures made by the
food processing companies. Therefore, a change in the spending
pattern of the food chain owners will impact the company's
The volatility of the raw material prices also impacts the
company's strategies. The company uses steel as the main raw
material, which accounts for roughly 15%-20% of the total cost of
sales. The prices of steel often fluctuate affecting the
company's profitability. This in turn impairs the company's
accurate margin projection.
Europe is a major contributor to Middleby's revenues. The
continuous headwinds faced by the company in the region have hit
its international revenues hard. Per the company, the European
markets will remain weak in the quarters ahead, which may have a
negative impact on the revenues.
However, huge contributions from various acquisitions cannot
be negated. Middleby's latest acquisition of Viking is expected
to significantly boost the earnings in the coming quarters. The
company's operations in Latin America, Middle East and Asia are
flourishing well and are expected to continue in the coming
Middleby keeps inventing products to gain larger market share.
The company's "Kitchen of the Future" product was an instant hit
with its customers. Along with this, the induction technology of
the company is gaining momentum, thereby increasing revenue
generation. It is expected that after the launch of 12 products
in 2012, Middleby will launch around 13 products in 2013.
Other Stocks to Consider
Middleby currently carries a Zacks Rank #3 (Hold). Other
stocks worth a look in the industry include
Chart Industries Inc.
). While Gorman-Rupp carries a Zacks Rank #1 (Strong Buy), Chart
Industries and Dover Corporation carry a Zacks Rank #2 (Buy).
DOVER CORP (DOV): Free Stock Analysis Report
GORMAN RUPP CO (GRC): Free Stock Analysis
CHART INDUSTRIE (GTLS): Free Stock Analysis
MIDDLEBY CORP (MIDD): Free Stock Analysis
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