Select Comfort Corp (SCSS): Upgrading Ahead of FCF Expansion Which Should Lead To Buybacks - Piper Jaffray
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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.
Shares of Select Comfort closed at $25.76 yesterday.
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