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

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Tempur Sealy (TPX - Free Report) posted blowout fourth quarter 2020 financial results on February 11 that helped push its stock price to record highs. The mattress maker’s outlook has also turned far more impressive. And that’s just the start of why TPX is Friday’s Bull of the Day.

Sleep is Never Going Out of Style

Tempur Sealy is one of the world's largest mattress and bedding companies, operating under Tempur, Tempur-Pedic, Sealy, and the Stearns & Foster brands. The company sells mattresses, pillows, and more, and many of its offerings are what most consumer would consider high-end—outside of the super luxury side.

TPX’s various brands, models, and sizes range in price depending on what customers are looking for in a bed. The company sells adjustable beds, mattresses that provide cooling, and other high-tech capabilities to help provide better sleep. Most recently, TPX is aiming to help reduce snoring, as it can be detrimental to sleep patterns.

The company’s newer Ergo smart base Sleeptracker claims to be the “only sleep system in the market that features snore detection and response.” Maybe more importantly, Tempur-Pedic ranked number one in the U.S. Mattress Satisfaction Report by JD Power for the second year in a row in 2020.

TPX, like all retailers, has invested in its digital and direct-to-consumer business in the Amazon (AMZN - Free Report) age to help fight back against any encroachment from digital-focused newcomers and bed-in-a-box firms such as Casper (CSPR - Free Report) . Of course, Tempur Sealy also owns its own stores and works with third-party retailers like Mattress Firm, Big Lots (BIG - Free Report) , and others.

Recent Growth & Outlook

As we touched on at the outset, TPX posted strong Q4 results on Feb. 11, with sales up 21% and adjusted earnings up nearly 100%. Overall, its 2020 revenue jumped over 18% to reach $3.68 billion and top FY19’s 15% revenue expansion. Tempur Sealy has benefitted from increased pandemic related spending, but its sales also soared 30% in the fourth quarter of 2019, well before the coronavirus.

Zacks estimates now call for TPX’s revenue to climb another 17.3% in 2021 to hit $4.31 billion. This top-line expansion is projected to help lift its adjusted earnings by 28%. The company is then expected to follow up FY21’s growth with 6% stronger revenue in FY22 and 10% higher earnings.

The nearby chart showcases how quickly analysts upped their bottom-line outlooks following TPX’s strong fourth quarter report and guidance. Tempur Sealy’s FY21 and FY22 EPS consensus estimates have jumped 23% and 27%, respectively in the last seven days.  

Other Fundamentals

At the end of October, the company announced a four-for-one stock split that took place in the fourth quarter of 2020 to help make its price more accessible. The firm also announced its plans to initiate a quarterly cash dividend in 2021, while also increasing its buybacks.

The same day it released its Q4 results, Tempur Sealy declared for the first time since 2008 a quarterly cash dividend of $0.07 per share that's payable on March 12 to shareholders of record as of February 25. The payout will put TPX’s dividend yield at around 0.88%. Plus, the company said it increased its share repurchase plan by over $200 million to a total of $400 million.

TPX shares jumped to a new record following its Q4 release and its other updates, with the stock now up over 20% since near the end of January. The stock also popped during regular trading Thursday to hover just off its recent records at roughly $32 a share. More broadly, TPX has surged 50% in the past six months to crush the market and top the broader retail sector’s 9% run.

Tempur Sealy has also outpaced its 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. Despite its performance, TPX trades at a discount against its peers at 13.2X forward 12-month earnings vs. their 17.7X average. This also comes in below its own year-long median to help further showcases its value.

Bottom Line

Tempur Sealy’s positive EPS revisions help it land a Zacks Rank #1 (Strong Buy) right now, alongside “A” grades for Growth and Momentum and a “B” for Value in our Style Scores system. Meanwhile, seven out of the eight brokerage recommendations Zacks has for the stock come in at a “Strong Buy.”

Investors might want to consider TPX as a low-priced stock that’s prepared to return more value to shareholders and grow. The firm is also set to benefit from the booming housing market, with 2020 home sales at the highest levels since 2006.

The housing market is finally being driven by millennials, which makes it sustainable beyond the pandemic. Plus, beds aren’t going out of style even if they look more and more high-tech.

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