Piper Jaffray Upgrades Select Comfort (SCSS) to Overweight; Becoming Increasingly Comfortable with FY17 Outlook

August 15, 2016 7:58 AM EDT
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Price: $20.57 +0.59%

Rating Summary:
    3 Buy, 7 Hold, 2 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 30 | Down: 30 | New: 23
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Piper Jaffray upgrades Select Comfort (Nasdaq: SCSS) from Neutral to Overweight and moves its price target from $23 to $31 following recent travels with management.

The firm commented: Our upgrade is based on three factors: (1) Potential for significant upside to 2017 Consensus EPS; (2) Increased comfort with implied Q4 guidance; and (3) FCF yield is now >10% and represents an attractive valuation. We recognize that SCSS shares have been plagued by inconsistent performance in recent years, but we see potential for improvement as SCSS moves beyond 4 years of heavy investment/transformation activity. We also note that the emerging Direct-to-Consumer threat could negatively impact industry incumbents such as SCSS, but we think significant EPS upside in 2017 can be achieved with only modest industry growth. We are moving our 2017E EPS to a Street-high $1.83. Our earnings multiple assumption moves from 14x to 17x due to our expectation for faster EPS growth.

On FY17 EPS expectations: ERP no longer seems to be a disruption and we have increased confidence the new system will drive meaningful operating benefits in the coming months. All in, we expect GM benefits of 50-100 bps starting in Q4 and continuing through most of 2017. We also expect healthy bounce-back to comp results through 1H 2017, coupled with strong share repurchase activity. All in, we are increasing our 2017E EPS to a Street-high $1.83, and we believe our model may be conservative.

For an analyst ratings summary and ratings history on Select Comfort click here. For more ratings news on Select Comfort click here.

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