TEMPUR-PEDIC $39.70 (New York symbol TPX; TSINetwork Rating: Speculative) (800-878-8889; www.tempurpedic.com; Shares outstanding: 59.6 million; Market cap: $2.4 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.
The stock is down 54.6% since it hit an all-time high of $87.43 in April 2012. However, it is still up 91.8% from the low of $20.70 that it dropped to in June 2012.
Competitors move into memory foam
Competitors have introduced many new products and supported them with aggressive promotions. For example, Simmons Bedding and Serta have both successfully launched memory-foam mattresses that directly compete with Tempur-Pedic’s products.
In the three months ended December 31, 2012, Tempur-Pedic’s revenue fell 7.0%, to $341.1 million from $366.8 million a year earlier. Earnings per share fell 28.6%, to $0.60 from $0.84.
Tempur-Pedic is now buying 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.
Tempur-Pedic trades at a low 12.6 times the company’s forecast 2013 earnings of $3.15 a share, and its long-term prospects are sound. However, while the Sealy purchase should pay off, a major acquisition like that could backfire.
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