Tempur Sealy Benefits From Mattress Firm's Woes, Wedbush Says

Tempur Sealy International Inc (NYSE: TPX) has the opportunity to capture significant market share despite the headwinds faced by traditional mattress manufacturers and retailers, an analyst at Wedbush said.

The Analyst

Wedbush analyst Seth Basham upgraded shares of Tempur Sealy from Neutral to Outperform and increased the price target from $60 to $65.

The Thesis

Given struggles at Mattress Firm Holding Corp (NASDAQ: MFRM) and accounting irregularities at its parent Steinhoff, rival Tempur Sealy has the opportunity to capture significant market share, Basham said in a Wednesday note.

This is despite the secular headwinds for traditional mattress manufacturers and retailers from online competition posed by Amazon.com, Inc. (NASDAQ: AMZN), soft industry trends in the fourth-quarter that are continuing through January, commodity cost headwinds and tough comparisons in the first quarter, the analyst said.

Wedbush's base case calls for the closure of at least 600 Mattress Firm stores in 2018, driving about $30 million incremental annual EBITDA for Tempur Sealy. Assuming the closure of 1,000 stores, a $50-million EBITDA boost could materialize, Basham said. 

Wedbush also projects that Mattress Firm might file for bankruptcy protection, or parent Steinhoff could sell the company to private-equity for a "fire sale" price. 

"Mattress Firm closed 70 stores in 2017 and same store sales declined 12 percent, leading the company to shed $550 million in sales," Basham said. 

The Price Action

Tempur Sealy shares are up about 34 percent over the past year.

At the time of publication, the shares were rallying 3.48 percent percent to $58.51. 

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