Without Major Improvements, Manitowoc Foodservice Looks A Little Overcooked

I can appreciate scarcity value, and I can appreciate the appeal of a company that enjoys strong share in a large, fragmented market and has only recently returned to sounder operating and management policies. Even so, it's hard for me to get comfortable with the valuation on Manitowoc Foodservice (NYSE:MFS). While I definitely think its "right-sizing" and margin improvement efforts will pay off, I think the company's business mix and the underlying growth potential of the foodservice industry are limiting factors.

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Without Major Improvements, Manitowoc Foodservice Looks A Little Overcooked

Seeking Alpha: Middleby Continues To Defy Gravity

It says something about Middleby's (MIDD) valuation that a 20% pullback from its recent 52-week high still has the shares trading at around 15 times forward EBITDA. Then again, this is a company that continues to post organic revenue growth and profit growth well in excess of its industry peers while still looking at a large, mostly unpenetrated global market. While I can't really get all that comfortable with the valuation here, the operational story continues to be one of continued performance.

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Middleby Continues To Defy Gravity

Investopedia: Middleby Launches A Viking Raid

Middleby (Nasdaq:MIDD) is a pretty remarkable company (and stock) by most standards. Blending internal product development with a steady stream of acquisitions, the company has built itself into a major restaurant equipment player. Along the way, revenue has grown at an average rate of nearly 16% over the past decade, while the stock is up more than 18,000% from 1992. This is not a cheap stock, though, and investors may have reason to ask whether this latest deal doesn't carry more risk than past tuck-ins.

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http://www.investopedia.com/stock-analysis/2013/Middleby-Launches-A-Viking-Raid-MIDD-ITW-DOV-MTW0103.aspx

Seeking Alpha: Growing Markets Could Lift Manitowoc Higher

Manitowoc (MTW) is an odd industrial company, as it combines a fairly steady food service equipment business with a leading (but extremely cyclical) crane business. Counting on the future to be just like the past is admittedly dangerous, but if Manitowoc's crane business follows pretty consistent historical patterns, investors may have several more years of improving sales and cash flow to look forward to, as well as an undervalued stock.

Food Service - Smaller, But Usually More Profitable
Although the crane business produces more revenue for Manitowoc, the food service business is both more consistent and generally more profitable across a full cycle. For better or worse, this is a story unlikely to produce a lot of surprises either good or bad.


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Growing Markets Could Lift Manitowoc Higher

Investopeda: Middleby Still Simmering

Wall Street is full of perverse incentives; one of them is that you sometimes find yourself rooting against a company you otherwise like. I would be more than happy to own shares of growing food service equipment supplier Middleby (Nasdaq:MIDD), as I believe the company is taking share with innovative products and has a lot of growth opportunities, as its customers go international. However, I also don't ever like to pay too much for a stock, so it seems that I have to wish for some bad news, to create a bargain opportunity in this name.

An OK Third Quarter 

Middleby did OK in the third quarter, but this stock is not typically priced to reward OK. Revenue rose 23% as reported, and acquisitions were once again a major component of the company's growth. Absent those deals, organic growth was more on the order of 6%. On a business segment basis, commercial food service did it all as revenue rose over 10% and offset the nearly 26% decline in food processing.

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Middleby Making The Right Kind of Smoke

Given that Middleby (Nasdaq:MIDD) is in the business of making commercial food service equipment, it is generally not good news for words like "smoking" or "on fire" to be attached to the company. Still, the company is making a rather impressive recovery from the worst of the recession and the nadir in restaurant equipment spending. 

A Solid Third Quarter
Middleby reported that revenue rose more than 15% as reported, and nearly 12% on an organic basis. That was basically in line with estimates, though Middleby is not a particularly widely followed stock. Profitability was a bit soft; gross margin dropped about 50 basis points on higher steel costs, and operating income rose 14% despite close to $1 million in expenses tied to severance and reduction programs. 


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