Tempur Sealy (TPX) Added to Best Ideas List at Wedbush

Wedbush added Tempur Sealy (NYSE: TPX) to its Best Ideas List, while reiterating an Outperform rating and price target of $80. The firm said the upside case is becoming more visible.

"Takeaways from recent management meetings and channel checks boost our confidence in upside to sales and especially margins in 2015 and beyond," analyst Seth Basham said. "We now have greater confidence as TPX capitalizes on a reinvigorated Tempur-Pedic brand, succeeds with new products, captures remaining integration synergies, accelerates profit growth from Sealy through manufacturing efficiencies and price/margin realization, and benefits from lower commodity costs. Increasing earnings visibility and the impending naming of a permanent CEO are key catalysts for outperformance, in our view."

The firm notes the company is building momentum. "In an effort led by interim CEO Tim Yaggi, TPX redesigned its core Cloud and Contour product lines last year and recommitted to brand superiority through product innovation. In our view, the fly wheel is turning through volume momentum, price increases, increased advertising, product innovation and increasingly effective channel management. The new Flex product launched in April is off to a very strong start based on our checks and has the potential to be as large as Contour given the appeal to a new customer type who may have otherwise traded down to a much lower-priced mattress. Barring a significant industry slowdown, we expect Tempur-Pedic to hurdle tougher 2H15 comparisons, with an extra boost from significant price declines worth as much as 100 bps to 2H15 margins."

The firm doesn't view the company's guidance of $45m (300 bps) of Sealy U.S. gross margin improvement over the next three years as too aggressive. Also, they view management change potential not a distraction, but an opportunity.

For an analyst ratings summary and ratings history on Tempur-Pedic click here. For more ratings news on Tempur-Pedic click here.

Shares of Tempur-Pedic closed at $65.90 yesterday.

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