The Emperor Has No Clothes
Long/short equity, deep value, special situations

Tempur Sealy - Protected Downside With Significant Upside

1) Introduction & Valuation

We believe Tempur Sealy (NYSE:TPX) is worth $70 based on multiple of 11x 2015E EBITDA, 5% sales growth and a minor 80 basis point gross margin expansion. This valuation could be conservative given the ongoing international expansion, potential synergies from the Sealy acquisition and TPX's dominant position in the mattress space. This could represent an 18% IRR over 24 months.

At present, TPX is trading at 11x 2014E EBITDA, 17x 2014E EPS and generates free cash flow yield of 4%. TPX is currently involved in reviving the Sealy business to grow sales, however even failing to deliver growth, we believe TPX is still worth $45 (based on gross margins that contract ~1.5% to 39.5%...

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