UPDATE: Piper Jaffray Downgrades Sealy Corp. to Neutral (ZZ)

Piper Jaffray is out with its report today on Sealy Corp. ZZ, downgrading ZZ from Overweight to Neutral. In a note to clients, Piper Jaffray writes, "Sealy reported February quarter results well below expectations. Sales declined 2% Y/Y, while gross and operating margins contracted materially on mix and lower AUSPs. We attribute earnings weakness to weak end-market demand, challenging pricing trends, increased competition and higher operating costs associated with new product launches. We have trimmed our earnings estimates as difficult macro trends continue and higher operating costs weigh earnings. The company is working on the full rollout of its new Posturepedic line expected to complete during the third quarter. In our view, a Neutral rating best reflects Sealy's business fundamentals. We are lowering our price target to $2.50 (23x FY12E EPS)." At the time of posting, shares of ZZ were trading pre-market at $2.47, down 11.15% from Tuesday's close.