Here's Why Middleby Stock Is an Opportunity After This Week's Drop
Key Points
Middleby stock has more than doubled the return of the S&P 500 over the last 20 years.
Middleby just spun off its food processing business and can now focus on commercial foodservice.
A simplified structure makes it easier for both management and investors.
Middleby (NASDAQ: MIDD) has always been a relatively difficult business to evaluate. Its acquisitive approach leads to constantly changing and moving parts. Long-time shareholders have been well rewarded, though.
Through July 6, when it spun off its food processing unit, Middleby's stock has more than doubled the S&P 500 index's return over the past 20 years, soaring 1,150%. After this week's first earnings report since the spin-off, though, shares sank 12.3%, according to data provided by S&P Global Market Intelligence.
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With a simplified structure and newly raised guidance, this week's drop looks like a great chance for investors to own Middleby.
Image source: The Motley Fool.
Unlocking value
On July 6, Middley completed the spin-off of its food processing business into a new publicly traded company, Midera Food Processing. Existing Middleby shareholders were issued shares of Midera common stock. Middleby has now become a pure-play commercial foodservice business.
Management now sees sales growing between 6% and 8% in the foodservice business this year. Its earnings per share (EPS) guidance implies a price-to-earnings (P/E) ratio of under 17.5, too. Middleby is a leader in commercial foodservice, with large global restaurant chains and retailers as customers.
That P/E compares favorably to large restaurant chains, including Yum! Brands and McDonald's. It looks like investors who can sift through the nuances of the restructured company could do well to buy Middleby stock after this week's drop.
Howard Smith has positions in Middleby and Midera Food Processing. The Motley Fool has positions in and recommends Middleby and Midera Food Processing. The Motley Fool recommends Yum! Brands and recommends the following options: long January 2028 $320 calls on McDonald's and short January 2028 $340 calls on McDonald's. The Motley Fool has a disclosure policy.