Is Now The Time To Buy Tempur Sealy International?
Shares of Tempur Sealy International (NYSE: TPX) tanked 20% in the wake of the Q4 earnings report and we can’t for the life of us fathom the reason why. The short interest is a tad high at 5% but not so high as to spark such a deep decline, not on the report we received, and the analysts and institutions seem to be fine with the company. The institutions have been net buyers for the last 5 quarters and that includes a net 4.9% of the now greatly-reduced market cap in the first six weeks of 2022 alone. The best we can come up with is profit-taking, selling has been vigorous since the first of the year and the technical outlook is bearish. The takeaway for us, today, is that now the stock is trading at a deep discount, the company is on track to repurchase up to $1.4 billion in shares worth nearly 20% of the market cap, and the dividend is incredibly safe and growing at a double-digit clip. As for the analysts, they still rate the stock a firm Buy with a price target more than 50% above the current levels, even after the earnings miss.
Tempur Sealy Misses Q4 Consensus But Guides For Growth
Tempur Sealy had a bad quarter but only in regards to the analyst's consensus. The company reported $1.36 billion in net revenue for growth of 28.3% over last year but missed the consensus by 620 basis points. The miss is due in large part to COVID-19 related headwinds that should subside in the latter half of the year but that is just speculation. On a segment basis, North American sales grew by 18.9% and were led by an 82.1% increase in the International segment. Internally, the higher-margin DTC sales grew by 115% and are running above $1 billion in annual sales.
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Moving down to earnings, the company’s gross margin contracted and slightly more than expected to 44.5%. The good news is that the operating margin came in above expectation, just not enough to offset the gross margin weakness completely. Operating income rose by 29.8% and net income by 21.5% to leave the adjusted earnings at $0.88 or $0.08 shy of the consensus.
Looking forward, the guidance is positive but only as expected in regards to the analysts’ consensus estimate. The company is calling for YOY revenue growth in the range of 15% to 20% with EPS of $3.65 to $3.85 versus the expected $3.76. In our view, the guidance is cautious given our expectation for the second half of the year and opens the door to outperformance in future quarters and upward revisions to the guidance.
Tempur Sealy Has A Comfortable Capital Return Program
Temper Sealy committed to dividends and aggressive share repurchases a little over a year ago and we must say that we are impressed with what we’ve seen. The company is yielding less than 1.0% at these levels but we see that changing quickly and not because of share price declines. The company has paid five quarters of dividends and increased the payout twice with one 28% increase and one 11% increase. This has the payout ratio up to a whopping 7% which leaves decades of room in the numbers for future increases. The balance sheet is solid as well and the company says it is on track to complete is repurchase program while maintaining its ultra-low leverage ratio.
The Technical Outlook: Tempur Sealy May Be At The Bottom
Shares of Tempur Sealy began their slide in early January and were forming a bearish triangle/flag continuation pattern just before the earnings announcement. Thie pattern alone suggested prices were falling which may have kept many traders on the sidelines and added to the depth of the decline. The key is that support is evident above the 28.8% Fibonacci Retracement level which is consistent with a prior breakout point and continuation signal. Assuming the market does not break support at the $28.90 level, we see this market bottoming here and then rolling into a buy signal by the middle of the year.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Tempur Sealy International (TPX) | $48.37 | +1.1% | 1.08% | 23.03 | Buy | $60.17 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
