Tempur Sealy Upgraded To 'Buy' At Longbow Research, But Why?

In a report published Tuesday, Longbrow Research analysts upgraded the rating on

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.