Ahead of the Bell: Tempur-Pedic

Raymond James analyst boosts profit predictions for Tempur-Pedic, as Sealy deal set to close

Associated Press

NEW YORK (AP) -- A Raymond James analyst on Monday boosted his profit predictions for Tempur-Pedic International Inc. after the mattress maker received clearance from federal regulators for its $228.6 million acquisition of rival Sealy.

Tempur-Pedic announced the Federal Trade Commission approval on Friday, and the sale is expected to close later this month. The deal comes amid increasing competition in the sector, as companies try to win over consumers still stung by the recession. However, with the economy improving and home sales on the rise, demand may soon be on its way up.

"The combined Tempur-Pedic and Sealy will be a formidable entity with a largely complementary portfolio of some of the best brands in the industry, spanning virtually all price points and mattress technologies," analyst Budd Bugatch wrote in a note to investors.

Lexington, Ky.-based Tempur-Pedic makes mattresses under its namesake brand, while Sealy of Trinity, N.C., supplies products with the Sealy, Stearns & Foster and Bassett names.

Bugatch, who backed his "Strong Buy" rating for the company, said that the combination will give Tempur-Pedic chances to significantly cut its costs for supply chain, product development, purchasing and international operations. He said added that while the combined company will start off with a high level of debt, it should be able to generate significant free cash flow that will allow it to quickly reduce that.

Bugatch increased his 2013 earnings prediction by 30 cents to $2.85 per share and his 2014 estimate by 71 cents to $3.54 per share. Analysts, on average, expect a profit of $2.60 per share for 2013 and a profit of $2.96 per share for 2014, according to FactSet.

The analyst also lifted his price target on the stock to $55.

Tempur-Pedic shares closed Friday at $45.10. Over the past year, the stock has traded between $20.70 and $87.43.

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