Could Tempur Sealy be the Sleeper Stock of 2023?

Bedding products manufacturer Tempur Sealy International Inc. NYSE: TPX stock has been quietly rising towards all-time highs. The world's largest bedding provider makes high-end memory foam and innerspring mattresses under premium brands Tempur-Pedic, Stearns & Foster, and Sealy.

It also manufactures adjustable bases, pillows, and sleep and relaxation products. It competes with Purple Innovation Inc. NASDAQ: PRPL, Sleep Number Co. NASDAQ: SNBR, and Leggett & Platt Inc. NASDAQ: LEG. However, Temper Sealy stock is outperforming its competitors trading up 21% on the year versus its competitors down 3.59%, up 20%, and up 3.83%, respectively.

Post-Pandemic Normalization

The mattress industry saw a sharp demand uptick during the pandemic as stay-at-home mandates caused consumers to upgrade their bedding. The robust housing market also boosted as home buyers often buy new beds for their new homes. All that came to a screeching halt in 2022 as normalization kicked in hard for the mattress industry.

Rising interest rates, waning consumer spending, and a falling housing market in an uncertain macroeconomic environment were all factors. According to the National Association of Realtors, home sales fell 34% in 2022. However, the worst may be behind the industry.

Steadfast

On Feb. 9, 2023, Tempur Sealy released its fourth-quarter 2022 results for the quarter ending in December 2022. The Company reported an earnings-per-share (EPS) profit of $0.54, excluding non-recurring items, versus consensus analyst estimates for a profit of $0.52, a $0.02 per share beat. Revenues fell 12.7% year-over-year (YoY) to $1.19 billion, missing consensus analyst estimates of $1.22 billion. The adjusted gross margin was 41.6% for the quarter.

In-Line Guidance

Tempur Sealy expects full-year 2023 EPS between $2.60 to $2.80 versus $2.76 consensus analyst estimates. Sales are expected to grow in the mid-single digits YoY.

Conference Call Takeaways

Tempur Sealy CEO Scott Thompson noted its Q4 2022 net sales were $1.2 billion with an adjusted EPS of $0.52, representing 36% and 59% growth over pre-COVID 2019, respectively. But it was also 13% and 39% declines YoY, respectively. The Company launched a new collection of Stearns & Foster products and expected to expand its retail slot by 20%. Its U.S. eCommerce channel delivered double-digit growth.

He pointed out that “Sealy and Tempur continue to be the Number 1 and Number 2 best-selling mattress brands in America and among the most highly recommended, recognized, and desirable brands in the industry with 95% of shoppers aware of at least one of the TSI brands.”

Added to Best Idea List of 2023

On Jan. 10, 2023, Wedbush added Tempur Sealy to its 'Best Idea List' with a price target of $45, up from $30. Analyst Seth Basham expects the worst for the mattress industry to be behind them. While the outlook remains weak following double-digit declines in 2022, normalization from the pandemic may be over. Consolidation, falling input costs, and accretive acquisitions are all factors that can boost TPX stock. It also has one of the most robust balance sheets in the industry.

He also believes it's a potential acquirer, "TPX is the most logical strategic buyer given its size and the fact that it has been successful in its recent acquisitions of leading U.K. retailer Dreams and Southeast U.S. retailer Innovative Mattress Solutions."

Cup and Handle Within a Larger Cup and Handle

TPX has a unique minor cup and handles breakout within a significant cup and potential candle on the weekly chart. The minor cup and handle started on the gap down, falling from the minor lip line of $33.24 in February 2022 to a low of $20.03 by June 2022. The weekly market structure low (MSL) breakout triggered the bounce through $23.88 as shares staged a rally towards the minor lip line retest at $33.24 and pullback handle to $30.52 by November 2022.

The breakout through the minor lip line occurred by December 2022, and the stock hasn't looked back since as it climbs towards the potential major lip line at $47.53.

The weekly stochastic formed a mini pup above the 80-band and is starting to peak out and fall off the 93-band. The weekly 20-period exponential moving average (EMA) support rises at $34.61, followed by the laggard 50-period M.A. at $29.16.

The major cup breakout occurs at the major lip line at $47.53, with all-time highs just above at $50.51. Pullback support levels are at a $36.42 gap, $33.24 minor lip line, $30.52, $27.59, and $23.88 weekly MSL trigger.