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Tempur-Pedic International  (TPX)

Back on February 3rd, I highlighted TPX as a momentum stock due to its strong earnings momentum, fundamental growth, brand strength and new line of moderately priced beds that should appeal to a wide segment of consumers.

Since that time the stock has risen over 9% and is still gaining interest from analysts; recently receiving a Buy rating and upgraded target of $85 by Oppenheimer Analysts.  After a 60 percent rise off of its lows in December, the question is whether Tempur-Pedic still has upside from here or if it’s due for a nap?

Recent Developments
Tempur-Pedic manufactures, markets and sells high-end beds made from a material that was originally manufactured to cushion NASA astronauts on their flights into space.  

They operate in about 80 countries and continue to expand, with their emphasis being here in the US.

In my February 3rd momentum update, I noted the recent release of TPX’s ‘Tempur-Simplicity’ line, a lower cost line that doubles the size of their addressable market.   

Since then the company held its 2012 Investor Day presentation on February 22nd, at which time executives offered investors and analysts quite a bit of information.  I wanted to offer some of the details and highlights on what I was able to glean from the report.

The global mattress market is a 20 billion dollar a year industry and growing, with 6 billion in premium sales.  The US represents roughly 6 billion of the total sales (both regular and premium) alone.  Non-spring mattresses (Tempur type) represent about 30% of that total and are increasing.  In fact, non-spring mattresses have been driving a large part of the growth in the past 3 years and Tempur is looking to capture that business.

In the US, Tempur-Pedic beds represent only 3% of the total marketplace, which means that 97% of the total market share goes to its competitors, but also implies that TPX has a large amount of business it can capture.

Tempur’s main focus is the US, but they are looking to expand their international segment over the next several years in addition to growing presence and sales here in North America.  The CEO offered some very optimistic projections for growth over the next couple years.  He based much of the projections on what he has delivered over the past 3 years since their last Investor’s Day and what he is experiencing in the market right now.

Back in 2009 the company projected sales of $2 billion with operating margin to be at 25% by 2014.  In 2011 they were well ahead of those targets, earning $1.4 billion and already seeing operating margins at more than 24%.  During this last call he upped the ante for TPX, now projecting sales of $3 billion and $8.00 in EPS by 2016. 

At current multiples, that puts the stock just over $150.00…

To get to those numbers, Tempur is rolling out the Simplicity line, which will fill a void in the mid-range mattress market that is widely un-developed.  The line will offer three different feeling Tempur mattresses all at a price of $1499 (price per queen set).

Executives have great confidence in the new line and its acceptance by the consumer after extensive testing over the past 15 months where 2,500 random mattress buyers tested over 14,000 prototypes before they released the final product.  What’s more is that consumers who were tested favored the Tempur line is all four unique tests over 4 major competitors.  Having this objective data before a major launch should help solidify and justify projections.

One factor that stood out to me was the emphasis placed on brand recognition and strength.  As I cited in my previous article and in the subsequent video, TPX is like Apple in that they have a clear brand identity and are adored by their customers.  That is how they can say they are the ‘most recommended mattress in the US.’

Moving Forward
TPX stock has had quite a run here.  For the longer-term investor, I wouldn’t have too much of an issue getting long based on the predictions of the executives of the company and the trends within the sector. 

For the shorter term, more active traders and investors, you might see a pullback in the next couple weeks being that the stock has basically been straight up over the past 2 months, even exceeding the S&P 500 by more than 15%.  Valuations are fair given the growth potential, but slightly elevated.  I would look for a pullback into the $71-$74 area, then look to acquire the shares.   Of course, I don’t have a crystal ball and anything could happen, especially in this market climate.  READ THE ORIGINAL ARTICLE

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Jared A Levy is the Momentum Stock Strategist for He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.


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