Friday, December 02, 2005

Oven Maker Cooks the Competition: Middleby

There are some companies whose fortunes are literally tethered to the capital spending cycle.

Meet Middleby (MIDD).

Partly as result of 2 smart acquisitons, Middleby's ovens can be found in kitchens spanning 100 plus countries.

A recent upswing in the restaurant sector generated a massive ordering spree for new cooking equipment.

We don't know a gosh darn thing about ovens, but we know this: MIDD is a screaming buy.

In 2006, MIDD will begin shipping a new oven that'll reduce energy costs by 30% or more while cutting cooking time by 25%.

MIDD's margins are stable - for a company that's steel-dependent, that's worth noting -- and the stock trades at a ridiculously low 17 X next year's projected earnings.

Middleby is -- it would seem -- the "perfect stock."

MIDD sports a $600 million market cap, seasoned managment with its feet on the ground, great product and adoption potential, and lastly, visibility within a booming industry (The nation's 900,000 restaurants should hit $476 billion in sales in 2005, according to the NRA).

The only caveat: Middleby's balance sheet -- the debt levels we found surpass those of Middleby's peers.

Nevertheless, Middleby's track record speaks for itself; in addition, this company is (hyper)efficient, with ROA clocking in at a whopping 100%

Everytime we step into one of those trendy oven pizza restaurants, we can't help but ask: "You guys use Middleby, right?"

MIDD recently touched a new 52 week high; moreover, there is a whisper that MIDD may be splitting its stock inside the next month.

Stock splits -- which increase the number of shares, lead to greater liquidity, and boost a stock price -- make a company more accessible to smaller investors.

The real money to be made on MIDD will be made pre-announcement (in the weeks leading up to the split).

Bottom line: things are going to get much hotter for Middleby (the stock's already up 50% for the year) - we're intiating coverage this morning with a strong buy rating.

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