TEMPUR-PEDIC $44.72 (New York symbol TPX; TSINetwork Rating: Speculative) (800-878-8889; www.tempurpedic.com; Shares outstanding: 60.3 million; Market cap: $2.8 billion; No dividends paid) is changing its name to Tempur Sealy International. Its stock will continue to trade under the TPX symbol.
Tempur-Pedic completed its $1.3-billion purchase of rival Sealy Corp. in March 2013. This was a major acquisition for Tempur-Pedic, but it lets the company diversify into the market for traditional spring-coil beds. That should help it offset rising competition in its current business.
The company 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. Simmons Bedding Co. and Serta Inc. have both successfully launched memory-foam mattresses that directly compete with Tempur-Pedic’s products.
Sealy brings opportunity and risk
In the quarter ended March 31, 2013, Tempur- Pedic’s revenue rose 1.5%, to $390.1 million from $384.4 million a year earlier. Excluding one-time items, earnings per share fell 27.9%, to $0.62 from $0.86. That still beat the consensus estimate of $0.61 a share. Costs related to the Sealy deal were the main reason for the decline.
The company’s long-term prospects are sound, and the Sealy purchase is a positive. However, the stock now trades at a somewhat high 19.9 times Tempur- Pedic’s forecast 2013 earnings of $2.25 a share. In addition, while the Sealy acquisition should pay off, a major acquisition like this can always backfire.
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