MIDD Stock Study (7-10-24)

Posted by Mark on August 26, 2024 at 07:15 | Last modified: July 10, 2024 09:50

I recently did a stock study on The Middleby Corp. (MIDD) with a closing price of $120.02.

M* writes:

     > The Middleby Corp is engaged in designing, manufacturing, marketing,
     > distribution and service of a broad line of foodservice equipment
     > used in all types of commercial restaurants and institutional
     > kitchens, food preparation, cooking, baking, chilling and packaging
     > equipment for food processing operations, and premium kitchen
     > equipment including ranges, ovens, refrigerators, ventilation,
     > dishwashers and outdoor cooking equipment used in the residential
     > market. The company conducts its business through three principal
     > business segments namely the Commercial Foodservice Equipment
     > Group, the Food Processing Equipment Group and the Residential
     > Kitchen Equipment Group. The firm derives majority revenue from
     > Commercial Foodservice Equipment Group segment.

Over the past 10 years, this medium-size company has grown sales and earnings at annualized rates of 10.0% and 9.4%, respectively. Lines are up and somewhat parallel with a sales dip in ’20 and EPS dips in ’15, ’20, ’22, and ’23 (sounds worse than it looks). Value Line gives an Earnings Predictability score of 70.

Over the last decade, PTPM leads peer and industry averages despite trending slightly down from 17.2% (’14) to 12.9% (’23) with a last-5-year mean of 14.5%. ROE leads peer averages but trails the industry while falling from 20.2% (’14) to 12.8% (’23) with a last-5-year mean of 16.0%. Debt-to-Capital is higher than peer averages and about even with the industry while increasing from 37.3% (’14) to 43.0% (’23) with a last-5-year mean of 47.6%.

Quick Ratio is 1.1 and Interest Coverage is 5.3 per M* who assigns a “Narrow” Economic Moat. Value Line grades the company B++ for Financial Strength.

I find these fundamentals glaringly average.

With regard to sales growth:

• YF projects YOY 0.3% contraction and 3.4% growth for ’24 and ’25, respectively (based on 8 analysts).
• Zacks projects YOY 0.5% contraction and 2.8% growth for ’24 and ’25, respectively (6 analysts).
• Value Line projects 4.8% annualized growth from ’23-’28.
• CFRA projects 0.3% YOY contraction and 1.5% growth per year for ’24 and ’23-’25 (8).
• M* provides 2-year annualized ACE of 1.8% growth.

I am forecasting near the bottom of the range at 1.0% per year.

With regard to EPS growth:

• MarketWatch projects growth of 8.8% and 8.4% per year for ’23-’25 and ’23-’26, respectively (based on 9 analysts).
• Nasdaq.com projects 7.5% YOY and 10.3% per year for ’25 and ’24-’26 (6, 6, and 2 analysts for ’24, ’25, and ’26).
• YF projects YOY 1.1% and 9.9% for ’24 and ’25, respectively (8), along with 5-year annualized growth of 8.2%.
• Zacks projects YOY 0.7% and 7.4% for ’24 and ’25, respectively (6).
• Value Line projects 5.9% annualized growth from ’23-’28.
• CFRA projects 32.8% YOY and 21.0% per year for ’24 and ’23-’25, respectively (9).

Although these estimates seem a bit more lively than sales (especially CFRA, which seems almost outlandish), only two are long-term. My 4.0% per year forecast is less than both (average 7.1%). I will use 2024 Q1 EPS of $7.18 (annualized) as the initial value rather than ’23 EPS of $7.41/share to be more conservative.

My Forecast High P/E is 20.0. Over the past decade, high P/E falls from 30.0 (’14) to 21.9 (’23) with a last-5-year mean (excluding 39.7 in ’20) of 23.2 and a last-5-year-mean average P/E of 18.7. I am below the 10-year range.

My Forecast Low P/E is 13.0. Over the past decade, low P/E falls from 21.0 (’14) to 15.0 (’23) with a last-5-year mean (including dip to 11.1 in ’20) of 14.2. I am forecasting near the bottom of the range (only ’20 is less).

My Low Stock Price Forecast (LSPF) is the default value of $93.30 given initial value above. This is 22.3% less than the previous closing price and 14.9% less than the 52-week low.

These inputs land MIDD in the HOLD zone with a U/D ratio of 2.1. Total Annualized Return (TAR) is 7.8%.

PAR (using Forecast Average—not High—P/E) of 3.8% is less than the current yield on T-bills. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 41 studies in the past 90 days (my study along with 12 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 5.0%, 8.0%, 22.0, and 14.2, respectively. I am lower across the board. Value Line projects a future average annual P/E of 19.0 that is greater than MS (18.1) and greater than mine (16.5).

MS high / low EPS are $10.89 / $7.18 versus my $8.74 / $7.18 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $12.95 soars above both.

MS LSPF of $100.50 implies a Forecast Low P/E of 14.0: very close to the above-stated 14.2. MS LSPF is 7.7% greater than mine thereby resulting in more aggressive zoning.

With regard to valuation, PEG is 4.0 per my projected P/E: quite overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly low at 0.89.

MOS is robust in the current study because my inputs are below MS and near or below respective analyst/historical ranges. The quarterly initial value accentuates this. As a result, MS TAR (13.6%) is 5.8% per year greater than mine.

Per U/D, MIDD is a BUY under $113/share. Given a forecast high price ~$175, stock meets the BI TAR criterion under $88.

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