UBS Initiates Tempur Sealy At Neutral, Select Comfort At Sell

UBS believes the mattress sector is heading for ambiguity, with online players expected to gain share in the immediate term from the current 2–3 percent. Therefore, the firm prefers to initiate two companies from the same sector with different rating.

While commencing a Neutral rating for Tempur Sealy International Inc (NYSE: TPX) with a target price of $60, the brokerage initiated Select Comfort Corp. (NASDAQ: SCSS) shares at Sell with $20 as price target.

Analyst Michael Lasser, while remaining guarded on the sector, provided two factors to support his views:

1. Reduced pricing power fulfilling consumer's perceptions.
2. Pressure on costs to increase to add new customers.

Related Link: Furniture Stocks Under Pressure Following Warning From Tempur Sealy

Tempur Sealy

As far as Tempur Sealy is concerned, the brokerage sees meaningful profitability improvement in the immediate term with operating margin expected to expand 120 basis points in the second half of 2016 and 140 basis points in fiscal year 2017. The firm sees the upside balancing the downside risks as the top-line growth would be muted.

"Further, there is also a risk of lumpiness in its sales trends given the volatility in the space (its recent biz update served as a reminder). Taken together, we think risk-reward is fairly even on this stock," the analyst told clients in a research note.

Select Comfort

On Select Comfort, UBS sees positive factors were more than compensated by increasing dependence on current customers, high competitive environment, lofty expectations, less flexibility in operating model and weakness to external risks.

"The consensus assumes 10 percent sales growth & 120 bps of OM expansion in '17. Plus, we doubt SCSS can continue to push AUP higher (already at $4,206) in a consolidating & increasingly transparent market," the brokerage concluded.

Select Comfort was seen up 0.26 percent at $22.88 at time of writing, while Tempur Sealy was down 3.62 percent at $55.70.

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