Reasons Why You Should Avoid Betting on Middleby (MIDD) Stock
The Middleby Corporation MIDD has failed to impress investors with its recent operational performance due to weakness in the Commercial Foodservice Equipment Group segment, high long-term debt and forex woes.
Let’s discuss the factors that might continue taking a toll on this Zacks Rank #5 (Strong Sell) company.
Business Weakness: Middleby has been witnessing weakness in the Residential Kitchen Equipment Group segment of late. Lower demand for residential kitchen products, due to weakness in the housing market, amid lower existing and new home sales, is affecting the performance of the segment. This is reflected in the segment’s results, which declined 21% year over year in the first quarter of 2024. Also, softness in the restaurant industry, due to declining traffic, high wages and food cost inflation, is affecting the demand for the company's products within the Commercial Foodservice Equipment Group segment. The segment’s revenues declined 3.8% year over year in the first quarter.
High Long-term Debt: The company's long-term debt in the last five years (2019-2023) witnessed a CAGR of 27.3%. At the end of the first quarter, the metric remained high at $2.4 billion, stable on a sequential basis. It is worth noting here that Middleby, in October 2021, amended its credit agreement, increasing its size to $4.5 billion from the previous $3.1 billion. The credit facility included a revolving credit facility, term loan and delayed draw-term loan. We believe that such offerings will add to its debt load and increase its financial obligations.
Forex Woes: International businesses expose Middleby to risks arising from geopolitical issues, unfavorable movement in foreign currencies and others. This is because a strengthening U.S. dollar may require the company to either raise prices or contract profit margins in locations outside the United States. Thus, adverse currency movements are a worry.
Southbound Estimate Revisions: In the past 60 days, the Zacks Consensus Estimate for MIDD’s 2024 earnings has been revised 4.9% downward.
Shares of Middleby have lost 17.9% in the year-to-date period against the industry’s 1.1% growth.
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Stocks to Consider
Some better-ranked companies from the Industrial Products sector are discussed below:
Applied Industrial Technologies, Inc. AIT presently sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter average earnings surprise of 8.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for AIT’s fiscal 2024 earnings has improved 0.9% in the past 60 days. The stock has risen 11.2% in the year-to-date period.
Brady Corporation BRC presently carries a Zacks Rank #2 (Buy) and has a trailing four-quarter earnings surprise of 6.7%, on average.
The consensus estimate for BRC’s fiscal 2024 earnings has increased 3.3% in the past 60 days. Shares of Brady have gained 10.5% in the year-to-date period.
Crane Company CR presently carries a Zacks Rank of 2. CR delivered a trailing four-quarter earnings surprise of 15.2%, on average.
The Zacks Consensus Estimate for CR’s 2024 earnings has increased 0.8% in the past 60 days. Its shares have gained 21.1% in the year-to-date period.
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The Middleby Corporation (MIDD) : Free Stock Analysis Report
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Brady Corporation (BRC) : Free Stock Analysis Report
