Acquisitions And Ghost Kitchens Will Erode Traditional Demand

Key Takeaways

• Shifting consumer preferences and industry trends are eroding demand for traditional Middleby products, threatening long-term growth and market relevance.
  
• Heavy reliance on acquisitions and regulatory cost pressures heighten risks to profitability, operational stability, and future earnings consistency.
  
• Divesting the Food Processing business, aggressive share buybacks, global expansion, and digital innovation position Middleby for focused growth, margin improvement, and market share gains.

Catalysts

Designs, manufactures, markets, distributes, and services commercial restaurant, food processing, and residential kitchen equipment worldwide.

• The increasing consumer shift toward health, environmental consciousness, and less equipment-intensive food options is likely to erode Middleby’s core foodservice and residential product demand over time, risking a sustained contraction in revenue as fast-casual and traditional restaurant concepts lose favor.
  
• The sustained global rise of “ghost kitchens,” automation-based food prep, and direct-to-consumer delivery platforms may structurally reduce the need for large-scale, back-of-house equipment, shrinking Middleby’s overall addressable market and ultimately capping long-term organic growth.
  
• Over-reliance on acquisitions and M&A-driven expansion strategies raises significant risks of operational integration failures and potential for future goodwill impairments, placing ongoing pressure on net margins and increasing the volatility of reported earnings.
  
• Heavier regulatory burdens and rising R&D/operational costs tied to energy efficiency and environmental compliance threaten to compress profitability, with Middleby potentially facing margin headwinds as compliance costs outpace pricing power and established OEM customers gain more bargaining leverage.
  
• The company’s aging product portfolio and the risk of slower R&D cycles leaves it vulnerable to disruption from both innovative entrants and shifting customer preferences favoring compact, multifunctional, or robotics-driven kitchen solutions—risking further market share loss, revenue stagnation, and negative earnings surprises.

Middleby Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Middleby compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Middleby's revenue will grow by 3.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 11.1% today to 12.7% in 3 years time.
• The bearish analysts expect earnings to reach $537.1 million (and earnings per share of $10.36) by about May 2028, up from $428.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 16.1x on those 2028 earnings, down from 17.0x today. This future PE is lower than the current PE for the US Machinery industry at 21.6x.
• Analysts expect the number of shares outstanding to decline by 0.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.97%, as per the Simply Wall St company report.

Middleby Future Earnings Per Share Growth

Risks

• The pending separation and public spin-off of Middleby’s Food Processing business is expected to unlock significant shareholder value, enabling each entity to pursue focused strategies and optimal capital allocation, which could drive higher revenue, improve net margins, and boost earnings for both stand-alone companies over time.
  
• Middleby’s substantial share buyback program, authorized to repurchase up to 21% of outstanding shares using the majority of its free cash flow, not only signals management confidence in undervaluation but also directly supports earnings per share by reducing share count, potentially driving share price appreciation.
  
• The company’s global expansion—especially its investments and sales infrastructure in fast-growing international markets such as Europe, India, Brazil, and the Middle East—positions it to benefit from the proliferation of quick-service and fast-casual restaurant formats abroad, supporting recurring revenue growth and geographical diversification of cash flows.
  
• Middleby’s demonstrated innovation pipeline in automation, digital kitchen solutions, and IoT (e.g., Open Kitchen, induction ovens, beverage platforms), recognized with industry awards and growing industry adoption, promotes sticky, higher-margin recurring revenues and long-term earnings growth, acting as a buffer against cyclical slowdowns.
  
• Strategic operational advantages, such as a strong US-centric manufacturing footprint and proactive supply chain management, allow Middleby to mitigate tariff impacts more effectively than competitors, supporting margin preservation and providing opportunities to gain market share, thus maintaining or growing earnings despite short-term headwinds.

Valuation

• The assumed bearish price target for Middleby is $130.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Middleby's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $205.0, and the most bearish reporting a price target of just $130.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $4.2 billion, earnings will come to $537.1 million, and it would be trading on a PE ratio of 16.1x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of $135.38, the bearish analyst price target of $130.0 is 4.1% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.