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Wedbush On Select Comfort: Q3 Earnings Hold Up Well, Outperform Maintained

R. Chandrasekaran

A day after Select Comfort Corp. (NASDAQ: SCSS) disappointed investors with an earnings miss and downbeat forecast, Wedbush believes the near-term forecast isn't as bad as market expectations. The firm thinks third quarter EPS, which missed consensus by a penny, held on very well braving the pressures on sales that came in line with estimates.

As a result, analysts Seth Basham and Nathan Friedman reiterated an Outperform rating on the stock. However, they slashed the target price from $27 to $25 implying nearly 40 percent upside potentials following the more than 17 percent drop in share price after the results announcement.

The brokerage pointed out that Select Comfort's comps dropped 8 percent in the third quarter thus missing low-to-mid-single digit drop estimates. The firm reduced its estimates though it sees robust growth ahead. The company's reduced comp outlook of mid-40 percent range is still above the earlier consensus and Wedbush forecast of 40 percent and 39 percent respectively.

In a note, analysts said, "Given the slower demand environment, we believe our trimmed 4Q comp estimate of 38% is appropriately conservative and implies an ~900 bps slowdown from 3Q on an adjusted two-year sales growth basis; in addition, our 4Q sales estimate equates to only 85% of 3Q16 sales vs. an historical average of 90%."

While reducing fourth quarter EPS estimate from $0.41 to $0.35, the brokerage trimmed its EPS expectations from $1.80 to $1.71 for the year 2017. Similarly, sales forecast has been reduced from $1.477 billion to $1.458 billion.

At last check, the stock traded at $17.60, down 18.44 percent.

Latest Ratings for SCSS

Date Firm Action From To
Oct 2016 Bank of America Downgrades Neutral Underperform
Sep 2016 UBS Initiates Coverage on Sell
Aug 2016 PiperJaffray Upgrades Neutral Overweight

View More Analyst Ratings for SCSS
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