Please ensure Javascript is enabled for purposes of website accessibility

How Middleby Stock Gained 18% in August

By Anders Bylund – Sep 8, 2020 at 1:04PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The maker of professional-grade ovens and kitchen ventilation systems crushed Wall Street's second-quarter expectations.

What happened

Shares of Middleby (MIDD -1.60%) rose 17.9% in August, according to data from S&P Global Market Intelligence. The maker of cooking, cleaning, and food storage equipment for professional kitchens and home cooks alike posted strong second-quarter results, but the earnings-based gains were diminished by a deep dip into new debt papers.

So what

The company behind well-known brands such as Viking ranges, Toastmaster toasters, and quick-cooking Turbochef ovens saw second-quarter sales fall 38% year over year, but your average analyst had expected a deeper revenue drop of roughly 41%. The bottom-line story was similar, as Middleby's earnings fell 68% to $0.55 per share but analysts would have settled for $0.41 per share.

CEO Tim FitzGerald said the COVID-19 pandemic weighed heavily on these results but that Middleby is adapting to the slow sales by cutting costs. Demand for new equipment started to build in July for some types of machinery, like pizza ovens and quick-serve fryers.

Middleby's shares closed 16% higher the next day.

Photo of a sign reading Come in we're open, on the glass door of a busy restaurant.

Image source: Getty Images.

The stock lost some of its upward momentum two weeks later when Middleby raised $650 million on the debt market. The proceeds were earmarked for paying off high-interest revolving credit loans and general corporate purposes. The stock fell 10% over the next three days as investors and analysts mulled the implications of that move.

Now what

Middleby's stock has more than doubled since the market bottom in March but it still looks cheap at 13 times free cash flow and 18 times forward earnings. The road ahead may be rocky for several quarters as the restaurant industry works its way through the coronavirus pandemic. Armed with a refinanced debt load and positive profits even in the troubled second-quarter report, Middleby seems likely to continue rising from here in the long run. I thought the stock was a strong buy last December and it's even more tempting at these deeply discounted prices.

Selim Bassoul, former CEO, chairman, and president of Middleby, serves as Chief Innovator at The Motley Fool. Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Middleby. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Middleby Corporation Stock Quote
The Middleby Corporation
MIDD
$128.17 (-1.60%) $-2.08

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.