Tuesday, January 26, 2016

Seeking Alpha: Diworsification Messing Up Middleby's Growth

Among the many nuggets to be found in Peter Lynch's books, the concept of "diworsification" is one of my favorites. The term refers to companies that eventually expand or acquire beyond their core competencies and end up ruining their business in the process. With Middleby's (NASDAQ:MIDD) struggles in its Viking business leading to real pressure on growth and margins, it's fair to ask whether this company's foray into residential cooking equipment is destroying the value created by the strong commercial operations.

These shares have lost about a quarter of their value since I last wrote about them, as a slowdown in food processing sales and the mess in the residential business has led to disappointing quarters (including organic revenue contraction in the second quarter), downward revisions, and a re-examination of whether these shares still merit such a robust premium. I've cut back my growth expectations, but I believe Middleby is still well-placed to take advantage of growing demand for labor-saving automation in commercial kitchens. There's elevated risk right now, and I'd be nervous about buying ahead of fourth quarter earnings, but there's still above-average growth potential in the core business.

Continue here:
Diworsification Messing Up Middleby's Growth

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