TEMPUR SEALY $47.64 (New York symbol TPX; TSINetwork Rating: Speculative) (800-878-8889; www.tempursealy.com; Shares outstanding: 60.7 million; Market cap: $2.9 billion; No dividends paid) completed its $1.3-billion purchase of rival Sealy in March 2013. This was a major acquisition for Tempur Sealy (formerly Tempur-Pedic), but it has let the company diversify into traditional spring-coil beds.
The purchase is also helping Tempur Sealy offset rising competition in its current business; the company makes and distributes mattresses and neck pillows made of its Tempur material, which conforms to the body to provide support and alleviate pressure points.
Competitors Simmons Bedding and Serta have both successfully launched a range of memory-foam mattresses that directly compete with Tempur Sealy’s products.
In the quarter ended December 31, 2013, the company’s revenue jumped to $678.1 million from $341.1 million a year earlier. The gain included $333.5 million from Sealy. Excluding one-time items, earnings per share rose 10.0%, to $0.66 from $0.60.
Look beyond low p/e ratio
The company’s long-term prospects are sound, and the stock trades at a reasonable 16.4 times Tempur Sealy’s forecast 2014 earnings of $2.91 a share.
However, while the Sealy acquisition should pay off, a major purchase like this can always backfire. As well, selling conventional mattresses may not suit Tempur Sealy’s marketing expertise. The company’s long-term debt of $1.8 billion is also a very high 62% of its market cap.
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