Tempur Sealy (TPX) is one of the biggest deals around when it comes to mattresses. Its latest earnings report will bear that much out. Tempur Sealy may have many competitors, but it’s established itself as a leader in the market.
After the earnings report, the stock initially gained 2.5% in extended trading. However, it’s now down for the day. There’s always something to be said for the value of a quality product. It’s even better when that quality product is marketed well. That combination is what leaves me bullish on Tempur Sealy. (See Analysts’ Top Stocks on TipRanks)
Tempur Sealy’s stock chart looks almost like a comfy mattress itself. Better yet, someone left that mattress reclined, so it’s heading up as well.
TPX shares spent most of 2021’s early days flat, around $28 per share. With February’s arrival, though, the company woke up and began its first climb. The stock approached the $40 mark, but couldn’t quite hold on to it.
Once late June hit, though, the company passed the $40 mark for closing prices and started out on another leg up. September saw Tempur Sealy make a serious play for a closing price over $50, but that proved just a bit too much as it retreated to the $45 level. (See Tempur Sealy stock charts on TipRanks)
Tempur Sealy’s earnings report gave the company a leg up, even if it didn’t last for long. The company posted earnings of $0.88 per share, which proved to be a win against Zacks estimates of $0.85 per share.
It also proved a rather handy win against last year’s figures, which came in at $0.74 per share. This is also the fourth time in a row that Tempur Sealy has beaten estimates. That’s always welcome news for investors, and this time is no exception.
Tempur Sealy beat on revenue as well. The company posted revenue of $1.36 billion for the quarter, surpassing the consensus estimate by just over 2.5%. It also nicely increased revenue from the same period last year, which was just $1.13 billion.
Wall Street’s Take
Wall Street consensus rating calls Tempur Sealy a Strong Buy. Based on the projections of six analysts that have 12-month price targets on the company issued in the last three months, five out of the six consider it a Buy. The remaining analyst calls it a Hold.
There’s not much strength in that conviction, though. Tempur Sealy has wavered between Strong Buy and Moderate Buy for most of this year. Though it spent the bulk of its time as a Strong Buy, it shifted to Moderate Buy in April and once again in August.
The average Tempur Sealy price target of $52.67 implies 19.5% upside. The price targets range from a high of $57 and a low of $45.
Sweet Dreams Ahead for Investors
Tempur Sealy has already seen a solid performance this year. With good reason, too; as specialized as the company is, it has a lot of separate imprints. The company sells not only Tempur, Tempur-Pedic, and Sealy brands, but also Cocoon by Sealy and Stearns & Foster brands.
It breaks down its market into two segments: North America, and International. Reports noted that International sales were strong in particular.
Understanding the differences in marketing required to make sales in these two markets is important. Tempur Sealy’s growing sales in the International market prove that it understands the differences involved. It can appeal to a local crowd as easily as a more distant one.
Back in August, reports noted that Tempur Sealy embarked on a three-year deal with Mattress Firm, a major mattress retailer. Add in Tempur Sealy’s growing e-commerce and third-party sales presence, and it’s easy to buy a Tempur Sealy product. Businesses that make their products easy to buy often find people doing just that.
It doesn’t hurt that Tempur Sealy is also drawing a lot of attention from analysts. Zacks recently cited Tempur Sealy as a great potential growth target. Zacks called out Tempur Sealy’s growth rate in earnings per share, as well as its rising rate of cash flow growth.
Cash flow is the lifeblood of a company; any company with insufficient cash flow will find its business dying no matter what its other metrics are. Tempur Sealy’s cash flow rates are on the rise, which is great news.
Concluding Views
Some investors may be concerned that Tempur Sealy is a one-trick pony, and yes, it is; it sells mattresses. It sells a range of mattresses, but it’s mostly just mattresses.
However, it’s vital to note here that this is a product just about everybody uses. Sure, some mavericks are out there enjoying hammocks, and others are sticking to bedrolls on the ground. Nonetheless, for most of the world, mattresses are the way to go. That’s one huge market. Mattresses are generally a durable good that last at least five years, but they still need to be replaced.
Tempur Sealy has won over a growing market already. It’s likely to keep that market share in play with a quality product backing it up. Putting all your eggs in one basket is only a bad strategy if you don’t plan to keep that basket safe. Tempur Sealy seems to be doing just fine with such a strategy itself, and that’s why I’m bullish.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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