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Bull of the Day: Tempur Sealy International, Inc. (TPX)

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Tempur Sealy (TPX - Free Report) shares have skyrocketed roughly 150% since the market’s March lows to double its industry’s average climb. The mattress powerhouse has gained momentum as Wall Street watches consumers race to update their living spaces and the housing market starts to boom, as people adapt to the coronavirus.

Don’t Sleep on TPX

Right off the bat, investors should note that Tempur Sealy is set to report its Q3 2020 results before the opening bell on Thursday, October 29. And it might be prudent to wait for its actual results before making a decision. Nonetheless, TPX’s fundamentals and outlook are strong.

Tempur Sealy is one of the world's largest mattress and bedding companies that sells everything from mattresses to pillows, under different brands, which include Tempur, Tempur-Pedic, Sealy, and Stearns & Foster. The company has ramped up its digital and direct-to-consumer business in the Amazon (AMZN - Free Report) age to help better compete against digital-focused newcomers and bed-in-a-box firms like Casper (CSPR - Free Report) .

Tempur Sealy also works with third-party retailers like Mattress Firm, Big Lots (BIG - Free Report) , and others, and owns its own stores. Overall, the company’s beds are considered higher-end and their offerings obviously range in price. Tempur-Pedic landed at No. 1 in terms of customer satisfaction for the retail mattress segment in the J.D. Power 2019 Mattress Satisfaction Report.

Prior to the pandemic, the company had grown its sales for eight straight quarters. This run included 19% revenue growth in first quarter of 2020, 29% expansion in Q4 FY19, and 13% growth in Q3 FY19. The company’s sales dipped 8% in the second quarter, as stores and showrooms around the country and the world were impacted by coronavirus-based store closures.

Yet TPX executives said that the second quarter ended on a high note and “accelerated each month.” CEO Scott Thompson said in prepared Q2 remarks that his firm believes “the category is benefiting from a shift in consumer spend of discretionary dollars into the home category in which our products.” Tempur Sealy then in August announced its plans to open another new manufacturing facility to help it keep up with rising demand.

 

 

 

 

 

 

 

 

 

 

 

 

Other Fundamentals

TPX in mid-September raised its third quarter guidance on the back of stronger-than-projected demand. Zacks estimates call for the company’s Q3 revenue to jump 30% from $821 million in the year-ago period to $1.07 billion. Its adjusted earnings are projected to soar 67% to $2.17 per share.

Tempur Sealy’s fourth quarter EPS figure is projected to climb 19% on 7% higher sales. Overall, the company’s FY20 revenue is projected to jump 12.3% to $3.49 a share, which is set to help lift its bottom line by 46%. The mattress company is projected to follow up this growth with 7.5% higher sales in FY21 and 18% stronger earnings.

The nearby chart shows that TPX’s earnings outlook has improved. And it has crushed our adjusted earnings estimates in the last two periods, as part of four straight quarterly beats. Tempur Sealy’s positive bottom-line revisions help it land a Zacks Rank #1 (Strong Buy) at the moment, alongside its “B” grades for Growth and Momentum in our Style Scores system.

More broadly, the company stands to benefit from the housing market’s strength. For instance, U.S. home sales surged 10.5% on an annual basis in August, which came after July’s huge growth that represented the strongest monthly gain ever recorded, dating back to 1968. The impressive home-buying data continued in September, with sales of previously owned homes at a 14-year high in September—existing-home sales jumped 9.4% from August.

The housing market is finally being driven by millennials. This has industry analysts projecting a multi-year boom for the market, as the largest portion of the generation starts to get married and have kids. For instance, the Construction sector is one of only two of the 16 Zacks sectors that is projected to post earnings growth in Q3, with it expected to climb 11%, while and the overall S&P 500 is projected to dip -19.5%.

The company is part of the Retail-Home Furnishings Market that includes RH (RH - Free Report) , Ethan Allen (ETH - Free Report) , and others and ranks in the top 7% of our more than 250 Zacks industries. TPX trades at a discount compared to its highly-ranked industry at 12.9X forward earnings vs. the 16.2X average. This also comes in near its own one-year median.

Tempur Sealy shares have soared 150% since the March lows. That said, TPX stock is essentially flat on the year and has slipped in the last month. The stock rests at around $88 per share at the moment, which gives it about 8% more room to run before it reaches its February highs.

 

 

 

 

 

 

 

 

 

 

 

 

Bottom Line

Tempur Sealy holds a Zacks Rank #1 (Strong Buy) heading into the release of its Q3 financial results. And longer-term investors might want to keep their eyes on TPX since it sits within a growing economic sector.

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