I’ve waited far too long to buy shares in Middleby Corp (MIDD). The company came onto my radar about eight years ago. “Ovens?” I scoffed. “What kind of business is there in ovens?”
I should’ve known better because one of mutual fund managers that I respect the most, Ron Baron, held MIDD stock. He considered it a growth stock, and it’s performed like one, up from $14 to $95 since then.
It’s not the first time I’ve scoffed and eaten my words, but at least I can cook them up nice and juicy in MIDD stock now, because I’ve gone long.
Middleby isn’t just an oven company. Oh my, no. It has brilliantly, modestly and carefully expanded into all things having to do with food preparation and become a leader in the sector, to boot.
Go to the website. On the “products” bar, start scrolling. The list of machinery JUST KEEPS GOING. Then move over to “food service.” The same thing! Brand after brand just flies past. “Food processing” isn’t as populated, but I’m not about to complain.
Then, click on “residential” and try not to pass out, because Middleby purchased both the super-high-end residential kitchen company Viking Range Corporation, and the all-purpose supply company known as U-Line.
The latest quarterly results tell the company’s story.
Net sales up 12.3%, up 7.4% if we back out acquisitions. Breaking it down by segment, the Commercial Foodservice Equipment Group increased 13.9%, or 7.5% backing out acquisitions. The Food Processing Equipment Group sales increased 5.6%, or 1.5% excluding acquisitions. The Residential Kitchen Equipment Group sales increased 14.3% (no acquisition impact).
Gross profit was up 15%, and gross margins was up from 39.3% to 40.2%.
Operating income increased 18% to $80 million from $67.5 million. Net earnings were $1.05 per share, up from 73 cents per share, or a 45% increase. For the nine-month period, diluted earnings-per-share rose from $1.86 to $2.50, an increase of 36%.
MIDD stock’s incredible growth and expansion has come at very little cost to shareholder capital. The company has only $515 million in debt and is using its cash flow to pay down debt. It can do this because it has virtually no capital expenditures.
Fiscal years 2011 and 2012 each saw less than $8 million in capex, and there was only $14.6 million in the 2013 fiscal year. Year-to-date capex is only $10 million.
Meanwhile, operating cash flow has been between $128 million and $146 million the last three years, and is $165 million year to date.
It is practically impossible to find a growth stock selling at a reasonable price in this market. MIDD stock bucks that trend. It closed Monday at $95.35. Earnings this year are expected to come in at $3.41, up 21%. Fiscal year 2015 earnings are epected to be $4.03, up 18%, and long term projections are for 25% growth.
Thus, MIDD stock trades at about 24x FY15’s estimates. That’s a PEG ratio of 0.96, meaning it represents a slight value on fiscal year 2015. So investors might expect a 25% return annually going forward.
I think that’s incredible, and so is Middleby. I went long just recently and suggest you do, also.
