Middleby (MIDD) Displays Bright Prospects, Risks Persist

On Jun 13, we issued an updated research report on The Middleby Corporation MIDD.

In the past six months, this Zacks Rank #3 (Hold) stock has gained 21.9% compared with the industry’s increase of 18.1%.

Existing Scenario

Middleby is well poised to gain from increased demand from the domestic restaurant chain customers, and strength in beverage end market. It will also benefit from strong demand for automated conveyor and ventless cooking equipment.

Further, a robust Viking business and solid demand for major branded products like AGA and Rangemaster will likely boost near-term revenues of the Residential Kitchen Equipment segment. In addition, the company expects new product innovations to improve its top line.

Also, the acquisition of Standex International Corporation's Cooking Solutions Group (closed in April 2019) is predicted to solidify its existing product portfolio of cooking products. In addition, the buyout of Powerhouse Dynamics (closed in April 2019) will complement Middleby's Connect IoT platform, and will help in serving customers efficiently. Moreover, the M-TEK Corporation buyout (closed in October 2018) has been strengthening the company's business footprint in the global industrial food processing market.

The company’s continuous focus on supply chain, and investments in broadening its product portfolio, technologies and manufacturing capabilities are likely to further improve profitability and production efficiencies.

However, Middleby is currently dealing with rising costs of sales. In the first quarter of 2019, its cost of sales jumped 15.1% year over year while it increased 11.5% (CAGR) in the last five years (2014-2018). Notably, material cost inflation (on account of tariffs) is escalating the company's aggregate costs of late. Rising costs, if unchecked, will likely dent the company's margins in the quarters ahead.

Stocks to Consider

Some better-ranked stocks from the same space are Chart Industries, Inc. GTLS, Dover Corp. DOV and DXP Enterprises, Inc. DXPE. While Chart Industries sports a Zacks Rank #1 (Strong Buy), Dover and DXP Enterprises carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Chart Industries delivered average earnings surprise of 16.56% in the trailing four reported quarters.

Dover pulled off average positive earnings surprise of 8.61% in the previous four reported quarters.

DXP Enterprises delivered average earnings surprise of 48.47% in the trailing four reported quarters.

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