Midas Hasn't Lost Its Touch
Despite slumping sales, the repair-shop chain should see a boost in profits from recent acquisitions and a broadening product line.
Americans have cut back on new-car purchases, and the economically squeezed among us are putting off repairs on the ones we own. But unless there's a mass migration to bicycles or (gasp) public transportation, we're eventually going to have to plunk down some cash to keep our heaps road-worthy. That makes for a bullish outlook for Midas (symbol MDS), the repair-shop chain.
My memories of Midas are not exactly pleasant. I naively used to think that my new Midas muffler, together with a lifetime guarantee (for the muffler's life, not mine) meant I'd never again have to visit my Midas man -- at least as long as I didn't change cars. Then that mild growl would turn into a humiliating rumble, and I'd be back at Midas, hoping that the warranty spared me any more expense for the muffler. But I never seemed to get off that easy because, although the warranty covered my exhaust pipe, it didn't apply to my intake flange or my extractor widget or my whatever, and there would go another 300 bucks.
Why couldn't car makers just build mufflers out of something stronger than tinfoil? It turns out they could, and that spelled trouble for Midas. But the chain, which has more than 2,500 shops (both company-owned and franchised) in 17 countries, has adapted.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The stores started expanding their business by adding brake services. Now, they'll fix your air conditioning, steering, belts and hoses, and a variety of other parts. George Putnam, publisher of the Turnaround Letter, writes that Midas has "developed a valuable niche between the expensive, car-dealer service operations and the inexpensive, single-service shops [such as oil-change outfits]."
Putnam says that Midas is expanding intelligently. It recently bought the nationwide SpeeDee chain of oil-change and tune-up shops and plans to re-brand it with the Midas name and add other products and services.
But Midas's touch certainly hasn't been golden lately. On July 31, the Itasca, Ill.-based company trimmed 2008 guidance for sales and operating income a bit. It forecast this year's revenues at $192 million, down by $1 million, and says it expects operating income of $25.5 million to $26.5 million, down from a previous forecast of $28.5 million to $30.5 million (the forecast excludes $1.5 million in costs associated with turning some shops over to new franchisees). Analysts, on average, expect Midas to earn 71 cents a share this year and 85 cents in '09.
Putnam is bullish on Midas because he expects acquisitions and a broadening product line to boost both sales and profits. He also suggests that Midas's strategy of focusing on franchises enables the company to expand without having to make big capital outlays.
An equally compelling argument is made by a Midas competitor. Robert Gross, chief executive of Monro Muffler Brake, says drivers can put off maintenance only for so long. And from my days covering Monro as a reporter in Rochester, N.Y., where the company is based, I remember an axiom of the car-repair business: The older the fleet, the bigger the profits. The U.S. auto fleet will age as new-car sales plummet, forcing people to spend more on maintenance.
Before buying Midas, understand that this stock has been in a trading range that seems chiseled in stone. The stock closed at $15.20 on August 6, down from its 52-week high of $21. About five years ago, it traded at about $12. It meandered up to about $25 in 2005, and then meandered back down to a bit less than $13 in June.
If and when Americans start heading to repair shops in droves, the stock could quickly race past $20. But don't expect lavish gains -- auto repair is a gritty, slow-growth business.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

-
These Stocks Dipped in 2025. Do They Have Value?
If you are looking to add new long-term positions to your portfolio, as you should, this is the time to examine stocks that the market shuns.
-
Striking Gold (or Gas): A Financial Pro Unpacks the Nuances of Energy Investing
Investing in the energy industry, particularly oil and gas, involves understanding the facts about how projects generate returns through cash flow and long-term asset building, while also being aware of the risks.
-
If You'd Put $1,000 Into Bank of America Stock 20 Years Ago, Here's What You'd Have Today
Bank of America stock has been a massive buy-and-hold bust.
-
If You'd Put $1,000 Into Oracle Stock 20 Years Ago, Here's What You'd Have Today
ORCL Oracle stock has been an outstanding buy-and-hold bet for decades.
-
How to Invest for Rising Data Integrity Risk
Amid a broad assault on venerable institutions, President Trump has targeted agencies responsible for data critical to markets. How should investors respond?
-
If You'd Put $1,000 Into Sherwin-Williams Stock 20 Years Ago, Here's What You'd Have Today
Sherwin-Williams stock has clobbered the broader market by a wide margin for a long time.
-
If You'd Put $1,000 Into UnitedHealth Group Stock 20 Years Ago, Here's What You'd Have Today
UNH stock was a massive market beater for ages — until it wasn't.
-
What Tariffs Mean for Your Sector Exposure
New, higher and changing tariffs will ripple through the economy and into share prices for many quarters to come.
-
How to Invest for a Fall Interest Rate Cut by the Fed
A lot can happen between now and then, but the probability the Fed cuts interest rates in September is back above 80%.
-
Are Buffett and Berkshire About to Bail on Kraft Heinz Stock?
Warren Buffett and Berkshire Hathaway own a lot of Kraft Heinz stock, so what happens when they decide to sell KHC?