The Middleby Corporation MIDD seems to have lost its sheen due to difficult operating conditions in the U.K., forex woes, issues in meat processing and other prevailing headwinds. Also, weak price performance and lowered earnings estimates indicate bearish sentiments for the stock.
The company, with a market capitalization of $6.1 billion, carries a Zacks Rank #4 (Sell) at present. It belongs to the Zacks Manufacturing – General Industrial industry, currently at the bottom 32% (with the rank of 172) of more than 250 Zacks industries.
We believe that the industry is suffering from global uncertainties, unfavorable movements in foreign currencies, softness in industrial production in the United States and cost escalation — resulting from tariff woes, commodity inflation, high labor costs and freight charges.
Notably, Middleby’s earnings surpassed estimates by 5.52% in the third quarter of 2019. However, its sales lagged estimates by 5.02%. Organic revenues declined 2.9% year over year in the quarter.
In the past three months, the company’s shares have declined 3.4% against the industry’s growth of 12.8%.
Factors Affecting Investment Appeal
Top-Line Weakness: Middleby has three operating segments — Commercial Foodservice Equipment Group, Food Processing Equipment Group and Residential Kitchen Equipment Group.
For 2019, the company believes that issues related to meat processing will adversely impact its Food Processing Equipment Group. Also, weak spending by restaurant chains and issues related to Brexit will likely impact the Commercial Foodservice Equipment Group. The Residential Kitchen Equipment Group’s performance will likely be hurt by international uncertainties.
Forex Woes: Presence in the United States, Europe, Asia and other countries has exposed Middleby to geopolitical issues, macroeconomic challenges and unfavorable movements in foreign currencies. In the third quarter of 2019, forex woes adversely affected the company’s sales by 1.1%.
Persistence of such issues might pose concerns for Middleby.
Debt Headwinds: A highly-leveraged balance sheet is a headwind as high debts increase financial obligations. Exiting third-quarter 2019, Middleby’s long-term debts were $1,955.9 million. Net interest expenses and deferred financing amortization in the quarter were $20.8 million.
Also, the stock seems relatively more leveraged than the industry. Long-term debt/capital is at 51.3% for the stock and 47.3% for the industry.
Bottom-Line Estimate Trend: The Zacks Consensus Estimate for Middleby’s earnings has been revised downward in the past 60 days. The Zacks Consensus Estimate for earnings per share is currently pegged at $6.74 for 2019 and $7.39 for 2020, which indicates declines of 0.1% and 1.1% from the 60-day-ago figures, respectively.
The Middleby Corporation Price and Consensus
The Middleby Corporation price-consensus-chart | The Middleby Corporation Quote
Also, earnings estimates of $1.80 for the fourth quarter of 2019 suggest a decline of 0.6% from the 60-day-ago figure. Moreover, the company has Earnings ESP of -1.53% for the quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Stocks to Consider
Some better-ranked stocks in the industry are DXP Enterprises, Inc DXPE, Hickok Inc CRAWA and Chart Industries, Inc GTLS. While Hickok and DXP Enterprises currently sport a Zacks Rank #1, Chart Industries carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
In the past 60 days, earnings estimates for these stocks have improved for the current year. Further, positive earnings surprise for the last four quarters was 11.45% for Hickok, 17.67% for DXP Enterprises and 4.01% for Chart Industries.
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