Select Comfort Out of Its Zone

Select Comfort (SCSS - Snapshot Report) is in a difficult position, as sales trends in the mattress industry are awful. Due to a difficult macro environment, consumers are cutting back on spending. As a result, there is very little demand for the company's high-quality but high price-point bedding. We are reducing our estimates ahead of third quarter earnings release, which is scheduled for October 22.

While the company no longer provides specific sales and earnings guidance, management previously indicated that it expects to return to profitability in the second half of the year due to its cost-cutting efforts. We maintain our Hold rating, as its shares reflect an extended period of weak results.

Select Comfort shares trade at a discount to the industry average. We feel this appropriate given the deterioration in the company's growth. The stock should continue to trade at this discount until its sales trends improve. Our target price is $1.25, which is 42x our 2009 EPS estimate and assumes some recovery in its business next year.

Read the full analyst report on SCSS