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Bear of the Day: Tempur Sealy (TPX)

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Tempur Sealy (TPX - Free Report) develops, manufactures, markets, and distributes bedding products worldwide. The company provides mattresses, foundations, and adjustable bases, as well as other products comprising pillows, mattress covers, sheets, cushions, and various comfort products. It offers its products under the TEMPUR, Tempur-Pedic, Sealy, Sealy Posturepedic, Optimum, and Stearns & Foster brand names. The company was founded in 1989 in Lexington, Kentucky and currently employs over 7,000. Tempur Sealy is the Bear of the Day after falling to a Zacks Rank #5 (Strong Sell).

The company has a market cap of $3.5 Billion with a PE of 16. The stock has Zacks Style Scores of “B” in both Value and Growth and pays no dividend. While the Style Scores are decent, the company resides in an industry ranked 238 out of 265 (Bottom 10%) of the Zacks Industry Rank.

A recent guidance cut has scarred off investors and the stock has been under severe pressure. Investors would be best off selling the stock and perhaps might find better opportunity on the short side.

Slashing guidance

On September 27th Tempur issued 2016 revenue guidance of -3% to -1% year over year. This implied revenue would be at $3.06-3.12 billion verse the $3.23 billion expected.

The stock plummeted over 25% to test 2016 lows. CEO Scott Thompson had some comments on the quarter to try to calm investors:

"While our net sales are below expectations, our operational initiatives are going well and are continuing to drive considerable margin expansion. The net impact of the revenue shortfall and our continued margin expansion is that we felt it was appropriate to lower the midpoint of our adjusted EBITDA guidance by 5%. The midpoint of this updated guidance implies an increase in adjusted EBITDA of approximately 12% and approximately 20% growth in adjusted earnings per share compared to 2015."

While the stock has bounced off the lows since the company release earnings on October 27th, estimates don’t look great for the long-term.

Estimates revisions are headed lower

Looking at company’s revisions, investors can see how another move lower might happen. In just the last 60 days, estimates for 2016 have been taken 6% lower. While estimates for 2017 have been taken 7% lower. While there is a recent uptick, the overall trend is lower and the stock should follow the trend. 

A Better option

Williams-Sonoma (WSM - Free Report) is a Zacks Rank #3 (Hold) that might be seeing a turn around. The company is a specialty retailer of products for the home. The retail segment sells its products through its three retail concepts: Williams-Sonoma, Pottery Barn and Hold Everything. The company just saw its rank improve from Zacks Rank #4 to #3 after the company reported a 2-cent beat. Investors might want to be patient and wait for estimates to tick higher as they still are trending lower.   

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