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Here's Why Tempur Sealy (TPX) Stock is Worth Buying Now

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Tempur Sealy International, Inc. (TPX - Free Report) is poised to benefit from the demand for higher-margin Tempur-Pedic products in the United States. Also, the company continues to invest in brand development across boundaries.

Shares of Tempur Sealy have gained 38.8% over the past six months compared with the Zacks Retail - Home Furnishings industry’s 33.5% rise. Meanwhile, earnings estimates for 2021 have moved up 4.8% over the past 60 days. Apart from the above-mentioned tailwinds, the price performance was backed by a solid earnings surprise history. Tempur Sealy’s earnings surpassed the Zacks Consensus Estimate in the trailing nine quarters. This positive trend signifies bullish analyst sentiments and justifies the company’s Zacks Rank #1 (Strong Buy), indicating robust fundamentals and expectations of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Driving Growth

Technology-Based Products

Tempur Sealy is extremely focused on serving customers with something new and exciting every time they visit stores. In this regard, the company keeps on reinventing its assortments. This strategy is driving the company’s top-line performance on a year-over-year basis, lending it a competitive advantage over peers. Over the years, the company has addressed the difficulty of sleeping in high temperatures with its proprietary cooling technology. Notably, to address the snoring issue, Tempur Sealy has developed the Ergo Smart Base Sleep tracker. The sleep tracker is the monopoly product in the market which detects and responds to snoring automatically. During the first quarter of 2021, the company completed the rollout of the Smart Base to its North American third-party retail partners. The recently-updated Sealy mattresses offer superior support, including SealyChill and Surface-Guard technology. The company is optimistic about its long-term customer trends and anticipates higher sales price for its high-tech products.

Robust Brand Expansion

Tempur Sealy — which shares space with At Home Group Inc. (HOME - Free Report) , The Lovesac Company (LOVE - Free Report) and Williams-Sonoma, Inc. (WSM - Free Report) — is one of the largest brands in the United States. The company’s Sealy brand was regarded as America's #1 selling mattress brand in 2020. Notably, Sealy is America's most trusted mattress brand according to the 2021 Brand Spark American Trust study. The company continues to innovate and invest in product development. During 2021, the company is expected to remodel its Sealy portfolio with the launch of new models across essential Posturepedic and Posturepedic Plus brand lineups. The company is also optimistic about these products and expects the continuation of Sealy's lead as the #1 brand of mattresses in the United States.

Of late, Tempur Sealy has been witnessing strong customer demand for the brand. The company’s Stearns & Foster brand is celebrating its 175th anniversary in 2021. During the first quarter of 2021, the company delivered robust performance across its North America and international segments, primarily driven by growth across its brands, channels and price points.

Upbeat View

The company is optimistic about its business growth and has also been witnessing higher demand for bedding products, thereby aiding backlog growth for the second quarter of 2021.

During the first quarter of 2021, Tempur Sealy raised its full-year 2021 net sales and earnings guidance. For the full year, the company expects net sales growth to exceed 20% and adjusted earnings per share in the range of $2.50 and $2.70 compared with the earlier expectation of $2.30 to $2.50. It also expects adjusted EBITDA between $925 million and $975 million, up from the previous expectation of $875-$925 million.

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Higher ROE

Tempur Sealy’s superior return on equity (ROE) is also indicative of growth potential. The company’s ROE currently stands at 123.2%. This compares favorably with ROE of 33.5% for the industry it belongs to. This indicates efficiency in using its shareholders’ funds and Tempur Sealy’s ability to generate profit with minimum capital usage.