Wedbush On Select Comfort: Q3 Earnings Hold Up Well, Outperform Maintained

A day after Select Comfort Corp. SCSS disappointed investors with an earnings miss and downbeat forecast, Wedbush believes the near-term forecast isn't as bad as market expectations. The firm thinks third quarter EPS, which missed consensus by a penny, held on very well braving the pressures on sales that came in line with estimates.

As a result, analysts Seth Basham and Nathan Friedman reiterated an Outperform rating on the stock. However, they slashed the target price from $27 to $25 implying nearly 40 percent upside potentials following the more than 17 percent drop in share price after the results announcement.

The brokerage pointed out that Select Comfort's comps dropped 8 percent in the third quarter thus missing low-to-mid-single digit drop estimates. The firm reduced its estimates though it sees robust growth ahead. The company's reduced comp outlook of mid-40 percent range is still above the earlier consensus and Wedbush forecast of 40 percent and 39 percent respectively.

In a note, analysts said, "Given the slower demand environment, we believe our trimmed 4Q comp estimate of 38% is appropriately conservative and implies an ~900 bps slowdown from 3Q on an adjusted two-year sales growth basis; in addition, our 4Q sales estimate equates to only 85% of 3Q16 sales vs. an historical average of 90%."

While reducing fourth quarter EPS estimate from $0.41 to $0.35, the brokerage trimmed its EPS expectations from $1.80 to $1.71 for the year 2017. Similarly, sales forecast has been reduced from $1.477 billion to $1.458 billion.

At last check, the stock traded at $17.60, down 18.44 percent.