Who would have thought that sleeping could be so exciting? Investors in Tempur Pedic International (TPX) certainly are aware of it after the company raised for its full-year outlook on Friday. The stock soared to a new high as investors cheered the news. Is there more left or is time to move money out of this mattress?
For those who don’t know, the company manufactures, markets, and sells bedding products worldwide. Its products include pillows, mattresses, and adjustable beds, as well as various cushions and other comfort products.
Guiding Higher
Management said that expects first quarter 2011 net sales to be approximately $325 million, representing growth of 28% as compared to the first quarter of 2010. The Company currently expects first quarter 2011 earnings per diluted share (EPS) to range between $0.67 and $0.68. These figures were all well above the consensus estimate.
Chief Executive Officer Mark Sarvary commented, “First quarter sales and profits exceeded our prior expectations in both our North American and International segments. During the quarter, we made progress in our effort to enhance our product range and significantly increased our investment in consumer marketing as we seek to capitalize on the considerable market share opportunity we see for our brand.â€
Baked In?
The million dollar question is whether or not the good news is already built into the share price and if there is more upside. I am a firm believer that earnings momentum like this tends to continue for a long time and companies that raise guidance this aggressively have several quarters in a row of strong growth and stock price performance.
I think the company could very well earn up to $3.00 per share in the current year, which would put the forward P/E ratio at about 19x. This isn’t terribly cheap, but given the strong operating momentum the company is enjoying, it isn’t excessive either. Its high debt load does bother me a little, but not enough to sway me from thinking the stock will go higher. I think this could be a $65 stock by the end of the year.
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