BATON ROUGE, La., April 15, 2020 /PRNewswire/ -- Prescience Point Capital Management ("Prescience Point"), a private investment manager that focuses on deep investigations of public companies, today published a critical research report supporting its short position in shares of The Middleby Corporation (NASDAQ: MIDD), one of the largest providers of industrial kitchen equipment to quick-and full-service restaurants, retail outlets, and hotels.
After a months-long investigation that included a deep forensic analysis of the company's financial statements and interviews with key distributors and restaurant industry experts, Prescience Point believes Wall Street is overly optimistic about the company's ability to recover from the devastating impact that the COVID-19 pandemic will have on the restaurant industry.
Middleby had already been struggling before COVID-19 as many of its large restaurant chain customers pushed out capex and delayed projects. For years, Middleby was able to hide deteriorating organic growth with progressively larger but lower quality acquisitions. As demand starts to disappear and leverage nears all-time high, Middleby's debt-fueled roll-up strategy is set to implode.
Restaurants are permanently closing their doors at a record pace, over-levered chains are cutting unit growth & capex, large franchisee groups teeter on the edge of bankruptcy, and a flood of lightly used equipment is about to hit the market. Yet, Wall Street expects Middleby to have a "V" shaped recovery and post record profit and margins in fiscal year 2021. We believe this is nearly impossible.
According to interviews with key players, foodservice equipment purchases are down as much as 85% and many large foodservice equipment distributors are gearing up for a wave of used equipment about to hit the market. In addition, we were told some distributors were working with suppliers to return inventory as the new equipment market could all but dry up.
We value Middleby's shares at $26.91, implying 50% downside.
"Unfortunately, the coronavirus pandemic has devastated the restaurant industry and Middleby, with its giant debt load and declining organic growth, will be severely impacted," said Eiad Asbahi, Founder and Portfolio Manager of Prescience Point. "Even though shares have already fallen 50% this year, we believe investors are still too optimistic in their projections for Middleby's sales and profits and the stock could be cut in half again."
Click here to download Prescience Point's full detailed report on Middleby.
Prescience Point has a short position in Middleby and stands to benefit if its share price falls.
About Prescience Point Capital Management
Prescience Point Capital Management is a private investment manager that employs forensic investigative techniques to unearth significant mispricings in global markets. The firm specializes in extensive investigations of difficult-to-analyze public companies in order to uncover significant elements of the business that have been overlooked or ignored by others. Their publicly-available research focuses on exposing corporate wrongdoing and has been followed by resignations of auditors, CEOs and CFOs, earnings restatements, SEC investigations and stock delistings.
Prescience Point manages private funds on behalf of clients and principals and takes positions both long and short in support of their research. The firm invests across a broad set of equities that they believe have abnormally large disparities between what their underlying businesses are intrinsically worth and what their securities sell for.
The firm was founded by investor Eiad Asbahi in 2009 and is headquartered in Baton Rouge, LA. Prescience Point Capital Management is a registered investment advisor with the State of Louisiana a member of the Financial Industry Regulatory Authority, CRD number 152721. For updates follow Prescience Point on Twitter @PresciencePoint
THIS RELEASE EXPRESSES SOLELY PRESCIENCE POINT CAPITAL MANAGEMENT'S OPINIONS. Use Prescience Point's research opinions at your own risk. This is not investment advice nor should it be construed as such. You should do your own research and due diligence before making any investment decisions with respect to the securities covered herein. Forward-looking statement and projections are inherently susceptible to uncertainty and involve many risks (known and unknown) that could cause actual results to differ materially from expected results. You should assume we have a short interest in Middleby stock and therefore stand to realize significant gains in the event that the price of such instrument declines. Please refer to our full disclaimer located on the last page of our research report (linked herein).
Prescience Investment Group, LLC is a member of the Financial Industry Regulatory Authority, CRD number 152721.
SOURCE Prescience Point Capital Management