Tempur Sealy: Zacks’ Bull of the Day Play

Tempur Sealy (TPXSnapshot Report) delivered the coveted “triple play” when it reported its second quarter results on July 30. The company (1) beat revenue expectations, (2) beat earnings expectations, and (3) management raised its full year guidance. This prompted a flurry of positive estimate revisions from analysts for both 2015 and 2016, sending the stock to a Zacks Rank #1 (Strong Buy).

Tempur Sealy International, Inc. manufactures and markets mattresses, foundations, pillows and other products. Its brands include Tempur®, Tempur-Pedic®, Sealy®, Sealy Posturepedic®, Optimum and Stearns & Foster®.

Second Quarter Results

Tempur Sealy delivered better-than-expected second quarter results on July 30. Adjusted earnings per share came in at $0.53, beating the Zacks Consensus Estimate of $0.45. It was a 36% increase over the same quarter last year.

Net sales rose 7% to $764.4 million, ahead of the consensus of $750 million. Excluding foreign currency headwinds, net sales increased 11%, with double-digit growth in both the North America and International segments.

Profit margins expanded too. The adjusted gross profit margin expanded from 37.6% to 39.4% of net sales, due in large part to margin gains in its North America segment. Adjusted operating income jumped 26% year-over-year as the adjusted operating margin expanded from 7.8% to 9.2% of net sales.

Estimates Rising

Following strong Q2 results, management raised its full year guidance. The company now expects 2015 net sales between $3.125 billion and $3.175 billion, up from previous guidance of $3.100-$3.175 billion. It also expects adjusted EPS between $3.00 and $3.20, up from previous guidance of $2.80-$3.15.

This prompted analysts to revise their estimates significantly higher for both 2015 and 2016, sending the stock to a Zacks Rank #1 (Strong Buy).

The 2015 Zacks Consensus Estimate is now $3.18, up from $3.06 before the report. The 2016 consensus is now $3.77, up from $3.60 over the same period.

Valuation

Shares of Tempur Sealy trade around 20x 12-month forward earnings, which is in-line with the industry median. Its enterprise value to EBITDA ratio is also around the industry multiple of 14.

The Bottom Line

With strong sales growth, expanding profit margins and rising earnings estimates, shares of Tempur Pedic offer attractive upside potential.

Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.

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