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Middleby's (MIDD) Prospects Remain Bright Amid High Costs

Zacks Equity Research

On Dec 24, we issued an updated research report on The Middleby Corporation MIDD.

Year to date, this Zacks Rank #3 (Hold) stock has returned 7.9% compared with the industry’s growth of 35.6%.

Scenario at Present

Middleby has been benefiting from product innovation, solid offerings to customers and focus on growth markets. The company anticipates Commercial Foodservice Equipment Group segment to gain from expansion in international businesses, technologically-advanced products and solutions, effective marketing initiatives, acquired assets, and the increasing adoption of ventless cooking equipment. Moreover, Viking products, product introductions and residential showrooms are likely to strengthen Residential Kitchen Equipment Group segment.

Also, the company has been steadily strengthening business through acquisitions. In this regard, it acquired Ss Brewtech in June 2019 and Packaging Progressions in July. Moreover, in November 2019, the company added Brava Home to its portfolio. The buyout is expected to expand Middleby’s product offerings in the residential and commercial markets. In addition, the acquisition of Powerhouse Dynamics (closed in April 2019) complements the company's Connect IoT platform. Notably, acquired assets boosted its sales by 5.8% in the third quarter of 2019.

However, Middleby is currently dealing with rising cost of sales. For instance, in the third quarter of 2019, its cost of sales rose 0.4% year over year, while expanded 11.5% (CAGR) in the last five years (2014-2018). In addition, the company’s long-term debt in the last five years (2014-2018) rose 26.3% (CAGR), while the metric stood at $1,955.9 million at the end of third-quarter 2019.

Net interest expenses and deferred financing amortization increased 8.9% year over year in the third quarter. Notably, the stock looks relatively leveraged than the industry. Its debt/capital is currently pegged at 51.3%, higher than 47.3% recorded by the industry.

Stocks to Consider

Some better-ranked stocks from the same space are Kaman Corp. KAMN, Barnes Group, Inc. B and DXP Enterprises, Inc. DXPE. While Kaman currently sports a Zacks Rank #1 (Strong Buy), Barnes Group and DXP Enterprises carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kaman delivered positive earnings surprise of 7.72%, on average, in the trailing four quarters.

Barnes Group delivered positive earnings surprise of 4.21%, on average, in the trailing four quarters.

DXP Enterprises pulled off positive earnings surprise of 17.67%, on average, in the trailing four quarters.

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