TEMPUR-PEDIC $24.77 (New York symbol TPX; TSINetwork Rating: Speculative) (800-878-8889; www.tempurpedic.com; Shares outstanding: 59.6 million; Market cap: $1.5 billion; No dividends paid) makes and distributes Swedish mattresses and neck pillows made from its proprietary Tempur material, which conforms to the body to provide support and help alleviate pressure points.
Tempur-Pedic’s shares are down 69.7% since they hit an all-time high of $87.43 in April 2012. Competitors have introduced many new products and supported them with aggressive promotions. That has steadily pushed down Tempur-Pedic’s results.
In the three months ended September 30, 2012, revenue fell 9.2%, to $347.9 million from $383.1 million a year earlier. Excluding one-time items, earnings per share fell 22.2%, to $0.70 from $0.90.
Acquisition adds new markets
Tempur-Pedic now plans to buy rival Sealy Corp. (symbol ZZ on New York) for $1.3 billion.
The purchase lets Tempur-Pedic diversify into the market for traditional spring-coil beds. That should help it offset rising competition in its current business. For example, Simmons Bedding Co. and Serta Inc. have both successfully launched memory-foam mattresses that directly compete with Tempur-Pedic’s products.
Tempur-Pedic’s long-term prospects are sound, and the Sealy purchase is a positive. As well, the stock now trades at a low 8.8 times the company’s forecast 2012 earnings of $2.80 a share.
However, for now, we still see Tempur-Pedic as a hold.
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