Longbow Research has initiated coverage on top mattress stocks Tempur Sealy International Inc TPX, Mattress Firm Holding Corp MFRM and Select Comfort Corp. SCSS. According to analyst Mark Rupe, Tempur Sealy is the clear winner of the group.
“We believe that the company’s mid-term earnings potential exceeds what is embedded in current estimates and TPX’s current valuation,” Rupe explains.
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Longbow also believes the company has significant long-term catalysts in European and Asian expansion. Longbow has a $77 price target on the stock based on 10.5x 2017 EBITDA estimates.
Longbow names Tempur Sealy a Buy, but is not quite as bullish on Neutral-rated Mattress Firm and Select Comfort.
Despite post-deal synergies from the company’s acquisition of Sleepy’s, Longbow sees Mattress Firm’s high leverage and competitive marketplace as risks looking forward. The firm believes that the company’s national position has placed a target on its back, and it will likely face growing pressure from ecommerce and direct-distribution competitors.
When it comes to Select Comfort, Rupe likes the company’s recent sales growth, but is skeptical that it will be able to maintain its double-digit growth rate in coming years. Longbow wants to see either more stable business trends or a more attractive entry price for the stock before an upgrade can be considered.
Disclosure: the author holds no position in the stocks mentioned.
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