Mattress Firm Holding Corp. (MFRM): Zacks Rank Buy

Zacks

Mattress Firm Holding Corp. (MFRM) has been on an absolute tear recently, and for good reason.

The company recently delivered same-store sales growth of 24.8% for the fourth quarter and a huge earnings beat. And management provided bullish guidance going forward, prompting analysts to revise their estimates significantly higher.

It is a Zacks #1 Rank (Strong Buy) stock.

Company Description

Mattress Firm Holding Corp. is a specialty bedding retailer that sells mattresses from leading manufacturers like including Sealy (ZZ), Tempur-Pedic (TPX), Serta, Simmons and Stearns & Foster.

The company currently operates over 800 locations across 26 states. It is headquartered in Houston, Texas and has a market cap of $1.6 billion.

Fourth Quarter Results

Mattress Firm delivered better than expected fourth quarter results on April 10. Earnings per share came in at 22 cents, beating the Zacks Consensus Estimate by 3 cents.

Net sales surged 48% to $188.6 million, well ahead of the Zacks Consensus Estimate of $176.0 million. This was driven by a remarkable 24.8% increase in same-store sales.

The gross profit margin expanded 330 basis points to 40.2% of sales, driven by increasing leverage over occupancy and operating expenses.

Operating income surged 178% as the operating margin improved from 4.3% to 8.1% of sales.

Outlook

Management provided bullish guidance for 2012 following strong Q4 results. The company expects to earn between $1.40 and $1.48 per share in 2012 on same-store sales growth of 10-12%.

This prompted analysts to revise their estimates significantly higher for both 2012 and 2013, sending the stock to a Zacks #1 Rank (Strong Buy).

The Zacks Consensus Estimate for 2012 is now $1.57, above guidance, and representing 93% over 2011 EPS. The 2013 consensus estimate is currently $2.08, corresponding with 33% growth.

Not only is Mattress Firm growing sales at its existing locations, it is opening up new locations at a rapid clip and also recently acquired the Mattress Giant. Management plans to continue opening around 100 stores per year until it reaches 2,500 nationwide (it currently has around 800 locations).

Excellent Momentum

Shares have been on a tear since Mattress Firm went public in November:

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MFRM: Mattress Firm Holding Corp.

MFRM: Mattress Firm Holding Corp. 3-Month Chart

This has driven valuations up, with shares now trading around 30x the current 2012 consensus estimate. But when you factor in the tremendous growth potential over the next few years, this multiple is not unreasonable.

The Bottom Line

With strong momentum, rising earnings estimates, and tremendous growth potential, Mattress Firm offers attractive upside potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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