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I was looking through the list of top % gainers on the NASDAQ yesterday and came across an 'old favorite' of mine, Middleby Corporation (MIDD), which closed at $123.96, up $12.68 or 11.39% on the day. I do not own any shares of this company nor do I have any options on the stock.
When I write 'old favorite' I mean that I have looked at this stock previously on this blog. Generally, my policy is to wait 12 months or close to that prior to reviewing a stock again. When I do re-examine a stock, I call it "revisiting a stock pick." Some of my best stock picks show up again and again on the list of top % gainers as they move higher in price.
I first posted Middleby (MIDD) on Stock Picks Bob's Advice on July 29, 2005, when MIDD closed at $69.86/share. With yesterday's close at $123.96, this represents a gain of $54.10 or 77.4% since I first posted this stock a little under two years ago! I believe the stock still is worthy of a place on this blog, so let's take another look at this stock!
What exactly does this company do?
According to the Yahoo "Profile" on Middleby, the company
"...through its subsidiaries, engages in the design, manufacture, marketing, distribution, and service of a broad line of cooking equipment and related products in the United States. The company operates in three segments: Commercial Foodservice Equipment, Industrial Foodservice Equipment, and International Distribution."
How did they do in the latest quarter?
As I commonly point out on the blog, this stock soared because of the earnings report which was released after the close of trading on Thursday. On March 8, 2007, Middleby announced 4th quarter 2006 results. For the quarter ended December 30, 2006, net sales increased 27.8% (even excluding acquisitions, sales still increased 13.3% in the quarter). Sales came in at $98.3 million this year vs. $76.9 million last year. Net earnings came in at $11.1 million this year vs. $7.2 million in the same quarter the prior year. On a diluted per share basis this worked out to $1.34/share in the 4th quarter 2006, vs. $.88/share in the same quarter last year.
The company beat expectations with this report.
What about longer-term financial results?
Reviewing the Morningstar.com "5-Yr Restated" financials on MIDD, we find that the stock has had steady revenue growth from $103.6 million in 2001 to $316.7 million in 2005 and $359.5 million in the trailing twelve months (TTM).
Earnings have also been steadily increasing from $.18/share in 2001 to $3.98/share in 2005 and $4.39/share in the TTM. The company apparently did pay a dividend in 2003 and 2004 but no dividend is reported on Morningstar.com since. Outstanding shares have been steady with 9 million in 2001 and 8 million in the trailing twelve months.
Free cash flow has been positive with $29 million reported in 2003, $17 million in 2004, $41 million in 2005 and $40 million in the TTM.
The balance sheet, as reported on Morningstar.com, appears adequate with $3.2 million in cash and $109.7 milllion in other current assets. This total of $112.9 million in current assets, when compared to the $94.1 million in current liabilities works out to a current ratio of 1.27. In addition, the company has $109.5 million in long-term liabilities.
What about some valuation numbers on this stock?
If we refer to Yahoo "Key Statistics" on Middleby, we find that the company is a small cap stock with a market capitalization of $984.24 million. The trailing p/e is a moderate 26.50 with a forward p/e (fye 31-Dec-07) of 21.41. The PEG is a reasonable 1.59.
Checking the Fidelity.com eresearch website, we find that Middleby is a bit richly valued insofar as the Price/Sales ratio is concerned, coming in with a ratio of 2.44 (Price/sales TTM), compared to an industry average of 1.34. However, the company is also more profitable than average when viewed from the return on equity (ROE) perspective. The ROE (TTM) for MIDD comes in at 54.37% vs. an industry average of 22.81%.
Returning to Yahoo we find that there are 7.94 million shares outstanding with 7.15 million that float. Of these, as of 2/12/07, there were 830,630 shares out short representing a significant (imho) 11.4 trading days of volume. (higher than my arbitrary 3 day rule for significance). Thus with good news, the 'stage is set' so to speak for a squeeze of the shorts in face of strong earnings reported. No dividends and no stock splits are reported on Yahoo.
What does the chart look like?
If we review a "Point & Figure" chart on Middleby on StockCharts.com, we can see that the stock has been moving ahead fairly strongly since late 2004 with aperiod of consolidation through much of 2006. The stock is on the upswing again and the chart appears encouraging to me.
Summary: What do I think about this stock?
In a word, this was a GREAT stock pick in 2005 and still looks nice today! Middleby reported a terrific earnings report that beat expectations, they have had at least five years of strong financial results, and valuation appears reasonable with a bit of a steep Price/Sales but a strong Return on Equity. The p/e is moderate and the PEG is just a little over 1.5. Free cash flow looks nice and the balance sheet is reasonable. Finally, there are a significant number of short-sellers on this stock, and with the great earnings report, the 'stage is set' for an unwinding of those positions and significant buying of shares to cover the short sales.
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