In a report published Tuesday, Longbrow Research analysts upgraded the rating on Tempur Sealy International, Inc TPX to Buy, with a price target of $73.
Tempur's Nominating Committee, chaired by H Partners, is expected to announce the name of a new CEO shortly. "Sealy's gross margin had already begun to improve under the former CEO and we think a new CEO will look objectively to accelerate those trends," the analysts mentioned.
Sealy's gross margins averaged about 37 percent during 2000-2010 and declined to 34 percent before its acquisition by Tempur. Gross margins contracted further to around 30 percent in 2014.
"We believe a focus on better procurement, higher first pass scrap yields, plant consolidations, and a culture of continuous improvement, to name a few, could yield at least 300bp of margin improvement," the analysts added.
In the report Longbrow Research noted," Our BUY thesis is predicated on Sealy gross margin reaching 33% in FY16, a year earlier than management's original goal."
The EPS estimates for FY15 and FY16 have been raised from $2.98 to $3.01 and from $3.40 to $3.70, respectively.
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