What a difference a quarter makes. Although third-party research entities like Moody’s are still expecting double-digit default rates in the restaurant industry, and banks are still forecasting elevated losses over the next two years from this segment, the market’s view on Middleby (MIDD) has shifted rapidly, with the shares up about 40% since my last write-up as investors have shifted strongly toward recovery-phase thinking.
Even with the risk of meaningful long-term demand destruction, I thought Middleby shares offered interesting potential back in May. With the big move in the shares, though, the stock looks priced more like a high-quality short-cycle industrial, and that seems a little excessive. While the residential business should be set to improve and I do think established restaurant chains will resume capex next year, that appealing margin of safety is largely gone now.
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