Tempur-Pedic now ranks momentum buy

Stock trends remain bullish.

By Zacks.com Feb 6, 2012 3:28PM

Image: Worried woman © momentimages/Tetra images RF/Getty ImagesBy Jared Levy

Given the current state of the economy, most consumers are likely to be smart with their money and keep splurges to a minimum. One of the only areas that they might be willing to spend a little (or a lot) extra is on their mattresses, especially if they are having a hard time sleeping due to increased stress levels.

And Tempur-Pedic International (TPX) claims to be the No. 1 recommended bed in America.

According to the Better Sleep Council, the average person needs seven to eight hours of sleep a night, which means about one-third of a person's life is spent lying on a bed.

Moreover, a good consistent night's sleep is a key part of a healthy lifestyle, just as much as diet and exercise. It affects how you feel, your relationships, your productivity and your quality of life. While you sleep, your brain goes to work consolidating the day's learning into memory and reenergizing the body.

Given that universal need, Tempur-Pedic's edge as the No. 1 bed might just be the angle that is helping it gain momentum in a space that is crowded with many choices and levels of quality. When consumers buy a Tempur-Pedic, they know they are getting a quality mattress that "feels" a certain way. Now the company is reaching out to even more consumers.

Tempur-Pedic actually got its start from a product NASA released to the public in the 1980s that was used to cushion astronauts during rough takeoffs and landings. You might remember the popular commercial with the wine glass on the bed -- it didn't spill when someone jumped on the other side of the mattress. This lack of energy transfer makes the Tempur beds a favorite among couples who might toss and turn at night.

Tempur beds have long been premium products with price points exceeding the average budget. To an extent, this has been good for the company as the wealthy have stayed relatively wealthy during the downturn. But the company also recently released its Tempur-Simplicity line, which is lower cost and doubles the company's addressable market size. A queen-size set retails for about $1,499.

On top of its American sales, the company also has revenues from its international operations. In its last earnings release it noted that Tempur Pillow sales rose 16%, with U.S. sales rising 15% and international sales rising 17%. International pillow sales were up 13% after accounting for currency fluctuations.

The company plans to boost its distribution network, and is predicting that 2012 sales will be about 13% to 16% higher than last year's. It also increased brand advertising to record levels in 2011 to almost $150 million. Given its sales momentum and the bullish trends in the stock, TPX is doing a good job at making rough markets more comfortable.

Tempur-Pedic is a mid-cap ($4.33 billion) company that is trading at about 21 times trailing earnings. Looking forward, Zacks Consensus Estimates are calling for that number to drop closer to 16.4 with no change in price from these levels 12 months from today.

Tempur-Pedic jumped from a Zacks Rank 3 to Rank 1 on Jan. 10.

The mattress maker reported a quarterly sales increase of 25% at its last earnings report. It was a strong quarter to end a good year. Annual sales leapt 28% compared to 2010 with total sales of roughly $1.4 billion in FY2011. Tempur-Pedic saw earnings growth of about 47% in the same period. The company is expected to earn $3.90 a share in FY2012 according to the Zacks Consensus Estimate.

The trend has certainly bullish in analyst revisions after the strong report on Jan. 24.  The bulk of analysts who cover Tempur-Pedic increase their estimates over the past 30 days, for the current and next quarter as well as FY2012 and FY2013. A few adjusted current quarter estimates lower. It will report Q1 (2012) results on April 19.

Expectations are for Tempur to generate $0.84 in income per share this quarter. Of the 14 analysts who cover the company, the consensus is for it to grow earnings by 22.5% in FY2012 and roughly 17% in FY2013.

In terms of the magnitude of analyst estimate trends, we are seeing all of the consensus estimates higher than they were 90 days ago for Q22011 out to FY2013. The consensus for Q2 earnings has come in 1 cent versus 30 days ago.

Tempur-Pedic beat estimates last quarter by 2.5% and has managed to exceed consensus estimates for the past year by an average of about 6.7%. In the past 12 months, the stock has responded well after earnings releases.

TPX was rallying with the markets since late December. Once the stock broke above the 50-day moving average we saw another small run then consolidation into the earnings report.

After the gap on earnings, the stock is again consolidating near its yearly high of around $73, which remains a major resistance level. Look for support around the $65 level, which is a bottom after the recent gap. Below that the 200-day moving average of $61 and the 50-day of about $57 will be the next support points.

For now TPX trends remain bullish and the stock has exceeded the S&P 500 by over 50% in the past year and over 15% in the past month.

Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.

Read this article on Zacks.com. Read the full analyst report on TPX (registration required).

Tags: TPX


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