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Tempur-Pedic International  (TPX)

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

According to the Better Sleep Council, the average person needs 7-8 hours of sleep a night, which equates to about 1/3rd of a person life being spent lying on their 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, TempurPedic claims to be the #1 recommended bed in America, which might just be the angle that is helping them to gain momentum in a space that is crowded with many choices and levels of quality.  When you buy a TempurPedic, you know you are getting a quality mattress that “feels” a certain way.  Now they are reaching out to even more of you...

Company Description & Developments
TempurPedic actually got its start from a product NASA released to the public in the 1980’s that was used to cushion astronauts during rough takeoffs and landings.  You might remember their popular commercial with the wine glass on the bed that didn’t spill as someone jumped on the other side.  This lack of energy transfer makes the Tempur Beds a favorite among couples who might toss and turn so as not to wake the other.

Even if you are prepared to spend good money on a mattress, Tempur beds have long been a premium product with price points exceeding the average budget.  To an extent, this has been good for them as the wealthy have stayed relatively wealthy during the downturn.  To remedy this, the company recently released their Tempur-Simplicity line, which is lower cost line and now doubles the size of their addressable market.  A queen size set will retail for about $1,499.

It’s not only American bedding that brings in revenue for TPX, they also sell beds, bedding and pillows internationally.  In their last earnings release they noted that Tempur Pillow sales rose 16 percent, with U.S. sales rising 15 percent and international sales rising 17 percent. International pillow sales were up 13 percent after accounting for currency fluctuations.

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

Financial Profile
TemperPedic is a mid-cap (4.33 billion) company that is trading at about 21 times trailing earnings (P/E).  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.  

TemperPedic jumped from a Zacks Rank 3 to Rank 1 on the 10th of January. 

The mattress maker company reported a quarterly sales increase of 25% at their 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.  TPX saw earnings growth of about 47% in the same period.  Tempur is expected to earn $3.90 in FY2012 according to the Zacks Consensus Estimate. 

Earnings Estimates
The trend has certainly bullish in analyst revisions after the strong report on January 24th.  The bulk of analysts who cover TPX 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.  TemperPedic will report Q1 (2012) results on April 19th.

Expectations are for Tempur to generate $0.84 in income this quarter.  Of the 14 analysts who cover TPX, the consensus is for the company 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. 

TemperPedic 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. 

Market Performance & Technicals
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 it’s yearly high of around $73, which remains a major resistance level.  Look for support around the $65 dollar 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.

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