KeyBanc Raises Tempur Sealy's Target Price On Strong Q2, Positive Outlook

Tempur Sealy International Inc TPX reported second-quarter EPS ahead of expectations and raised 2019 EBITDA guidance.

There seems to be a growing number of positives for the company, including the recent DOC ruling on Chinese imports and continued momentum from new partnerships and products, according to KeyBanc Capital Markets.

The Analyst

KeyBanc’s Bradley Thomas maintained an Overweight rating on Tempur Sealy, raising the price target from $90 to $95.

The Thesis

Tempur Sealy reported strong second-quarter results, with adjusted EPS of 79 cents beating the consensus of 67 cents. The earnings results were driven by higher-than-expected margins, Thomas said in the note.

Although sales grew as anticipated in the second quarter, EBITDA came in around $10 million, higher than consensus. Management raised the midpoint of their 2019 EBITDA guidance by $10 million.

So far in the third quarter, Tempur Sealy’s performance in North America has been similar to that delivered in the previous quarter. The analyst mentioned, however, that international sales had started off the quarter slightly slower versus the second quarter.

The DOC’s ruling in May on low-price Chinese imports is favorable for domestic producers like Tempur Sealy, Thomas said. He added that Tempur Sealy’s new products were performing well and the company was winning additional floorspace with retailers.

The analyst believes management’s guidance for incremental EBITDA of $75-$100 million from new account wins could prove conservative. He added that there is further EPS upside potential from an acceleration in share buybacks, given the company’s strong cash flows and growing EBITDA.

Price Action

Shares of Tempur Sealy traded around $79.83 at time of publishing on Friday.

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