Bullish KeyBanc Sees Opportunity For Tempur Sealy In A Mattress Firm Bankruptcy

Mattress company Tempur Sealy International, Inc. TPX has strong opportunities in its sector due to a shift in competitive dynamics, according to KeyBanc Capital Markets. 

The Analyst

KeyBanc analyst Bradley Thomas upgraded Tempur Sealy from Sector Weight to Overweight with a $75 price target. 

The Thesis

KeyBanc projects that Mattress Firm will close 1,000-1,500 stores, handing market share to Tempur Sealy and a possible 48-cent EPS tailwind in 2019, Thomas said in the upgrade note. (See the analyst's track record here.) 

“Moreover, a re-partnership with MFRM (which stopped selling TPX in 2017) could add $2.50-plus to EPS,” the analyst said. 

MRFM seems to be facing an inevitable bankruptcy, Thomas said, adding that a sale of the company after Labor Day — a major cash flow event — seems likely and smart.

“Recent stories from Reuters and the New York Post support a near-term event, and we would expect formal news before 2018 is over."

Numerous reported financial and strategic buyers have shown interest in MRFM, which allows for the opportunity to improve EBITDA through store closures and sales transfers, in addition to bringing TPX back, Thomas said. 

“For TPX, we see a tailwind of up to $500 million for sales and $2.50 for EPS should TPX regain similar share at MFRM as it previously held." 

The mattress industry is increasingly competitive given the growth of e-commerce brands and cheap imports, the analyst said. 

“Looking ahead, we believe the underlying business can benefit from more rational promotional levels at MFRM, the rollout of the new Adapt models ... price increases, and the potential anti-dumping action against Chinese manufacturers."

Price Action

TPX shares were up 1.83 percent at $57.88 at the time of publication Thursday. 

Related Links:

Casper Launches The Dreamery, New York's Storefront Nap Lounge

From Mattresses To Groceries, Survey Shows Consumers Don't Always Prefer Amazon