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Middleby (MIDD) Downgraded to Sell, Macro Headwinds Linger

Zacks Equity Research

On Sep 20, The Middleby Corporation MIDD was downgraded to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold). Going by the Zacks model, companies carrying a Zacks Rank #4 have chances of performing weaker than the broader market over the upcoming quarters.

Over the last month, shares of the stock yielded a return of 4.7%, underperforming 7.6% growth recorded by the industry.

Notably, the company currently has a VGM Score D.

Reasons for the Downgrade

Middleby intends to boost its revenues and profitability on the back of increased business internationalization. Nevertheless, foreign business exposure increases the incidence of economic and geopolitical risks for the company. For instance, adverse foreign exchange impact lowered Middleby's top-line results by $10.7 million in second-quarter 2017. A stronger U.S. dollar will continue to weigh over the company's revenues in the upcoming quarters.

Middleby’s top-line performance was hurt in the recently reported quarter due to lesser purchases made by major chain-restaurant customers and reduced sales from the European end markets. Persistence of these issues might further depress revenues in the near future.

Moreover, the ongoing restructuring moves in the AGA Group might continue to thwart the company's Residential Kitchen Equipment Group's revenues going forward.

We also notice that other headwinds such as stiff industry rivalry or unfavorable price fluctuation of major raw materials, such as steel, might dent the company’s near-term top- and bottom-line performance.  

Reflective of negative market sentiments, over the last 60 days, the Zacks Consensus Estimate for the stock also moved south for both 2017 and 2018.

Stocks to Consider

Better-ranked stocks in the industry are listed below:

Graco Inc‘s GGG earnings are projected to grow 10.5% in the next three to five years. The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Graham Corporation’s GHM earnings are projected to grow 15% in the next three to five years. The stock currently holds a Zacks Rank #2.

Altra Industrial Motion Corp.’s AIMC earnings are projected to grow 8% in the next three to five years. The stock currently carries a Zacks Rank #2.

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