Select Comfort Corp (SCSS): Upgrading Ahead of FCF Expansion Which Should Lead To Buybacks - Piper Jaffray

August 15, 2016 8:10 AM EDT
Get Alerts SCSS Hot Sheet
Price: $22.61 -0.09%

Rating Summary:
    3 Buy, 7 Hold, 2 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 21 | Down: 36 | New: 11
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Piper Jaffray analyst, Peter Keith, upgraded Select Comfort (NASDAQ: SCSS) to Overweight and raised his price target of $31 after taking management on the road last week.

The upgrade is based on three factors: 1) the potential for significant upside to 2017 Consensus EPS; 2) an increased comfort with implied Q4 guidance; and 3) the FCF yield is now >10% and represents an attractive valuation.

SCSS shares have been plagued by inconsistent performance in recent years, but the analyst sees potential for improvement as SCSS moves beyond 4 years of heavy investment and transformation activity

As SCSS moves past its transformation/investment years, capital spending and acquisitions are expected to decline from $90M/year to $50M-$60M/year. Also CF from operations are expected to be $175M-$200M/year through 2019. All of this translates to annual FCF of $125M-$150M/year or a >10% FCF yield based on current market cap. We expect much of this FCF to go to share repurchase activity.

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

Shares of Select Comfort closed at $25.76 yesterday.



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