Tempur Sealy International (NYSE:TPX) is due for strong gains in 2023 as the mattress industry is due to rebound, according to Wedbush analyst Seth Basham.
“While the mattress industry outlook for the next year is weak, the worst is likely now behind us following double-digit industry unit declines in 2022 that have more than fully reversed the pull-forward in demand during the pandemic,” he explained. “With industry declines likely to ease, TPX share gains potentially accelerating due to consolidation, commodity input costs rolling over and the possibility of very accretive acquisitions—namely Mattress Firm—there are multiple ways for TPX shares to outperform in 2023.”
He added that Tempur Sealy’s (TPX) strong balance sheet and product introductions set it apart in the industry as peers like Sleep-Number (SNBR) and Serta Simmons (SSB) sort out operational challenges. While Basham remained bullish on Purple Innovation (PRPL) as well, he noted that it is a far higher risk stock than Tempur Sealy.
Further, Basham sees the mattress maker as a potential acquirer of the Mattress Firm after it abruptly withdrew its plans to IPO on Monday.
“We believe that Mattress Firm is a candidate for acquisition particularly after it officially withdrew its IPO yesterday, just over a year since it filed to go public. Moreover, parent company Steinhoff’s most recent statement in mid-October suggests it could be strongly considering options other than an IPO,” he explained. “TPX is the most logical strategic buyer given its size and the fact that it has been successful in its recent acquisitions of leading UK retailer Dreams and Southeast US retailer Innovative Mattress Solutions.”
Given these potential share catalysts, Basham added Tempur-Sealy to his Best Ideas list and hiked his price target to $45, up from $30. Shares of the Kentucky-based mattress manufacturer rose 1.59% shortly after Tuesday’s market open.
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