- KeyBanc raised its Tempur Sealy (now Somnigroup International, SGI) price target from $62 to $66 and reiterated an Overweight rating.
- The call is driven by optimism on the Mattress Firm acquisition and expected $100–$300M of EBITDA synergies from integration and distribution expansion.
- U.S. demand remains soft and higher leverage/interest expense weighs on near-term GAAP results, while international growth and margins are improving.
- Recent quarters showed low-single-digit sales growth and higher EPS, but results were uneven due to deal-related costs and integration execution risk.
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In late 2024 and early 2025, analyst KeyBanc substantially upgraded its outlook on Tempur Sealy, reflecting a shift from maintaining confidence in its standalone operations to strong optimism around its acquisition of Mattress Firm and associated synergies. Initially, the firm raised the price target from $62 to $66 in January 2025, citing product innovation and an expanded footprint. Shortly afterwards, following favorable legal developments (a federal judge in Texas declining to block the acquisition), KeyBanc pushed its target further to $70. This reflects not just the valuation impact of the deal itself but the expectation that Mattress Firm’s scale and distribution channels will bring incremental earnings well beyond prior estimates—KeyBanc estimates synergies potentially totaling $300 million over five-to-ten years.
However, underlying U.S. demand remains under pressure. In Q2 and Q3 2024, net sales in North America either declined modestly or showed minimal growth, with wholesale channels particularly weak. Inflation and constrained consumer spending are key contributors. Gross margins, aided in part by price management and product mix, have shown modest expansion, but GAAP operating losses—especially in quarters heavily impacted by acquisition and transaction costs—remain a drag.
International markets and product innovation are emerging bright spots. In Q3 2024, international sales increased by over 10% (constant currency), margin expansion occurred, and adjusted operating income rose. Strategic shifts—like streamlining SKUs (from ~50 to 30) for Sealy, greater push for hybrids, and distribution expansion (including doubling presence in Sam’s Club)—are intended to drive retail velocity and enhance margin leverage.
Financially, the acquisition of Mattress Firm (completed February 2025) substantially increased leverage (debt rose from ~$3.8 B to ~$5.1 B) while adding revenue and operating income contributions. Although the company seeks to reduce net leverage to 2.0-3.0× within 12 months post-acquisition, elevated interest expenses and GAAP losses reflect short-term integration costs and the need to deliver on projected synergy and revenue growth paths.
From a valuation perspective, at a $70 target and current earnings projections, KeyBanc assumes multiple expansion for 2026. This implies that execution on retail expansion, product mix, international margin improvement, and the integration of Mattress Firm will be critical. Risks remain—legal/regulatory (FTC opposition), macro-economic weakness in U.S. consumer demand, competitive pressure, and execution risk in store divestitures and integration.
Supporting Notes
- KeyBanc raised its target from $62 to $66 in January 2025, later to $70, while maintaining Overweight.
- Mattress Firm acquisition closed February 5, 2025 for ~$5.2 B net of cash (with cash, stock) and added significant revenue.
- Q3 2024 net sales were ~$1.30 B (up ~2%), with North America flat/declining slightly and International up ~10-12% in constant currency. Gross margin rose to ~45.4%. EPS rose ~14% to $0.73 GAAP, adjusted EPS to $0.82.
- In Q2 2024, net sales dropped ~2.8%, North America down ~3.8%, international roughly flat or up modestly; adjusted operating income rose ~5%, adjusted EPS rose ~8.6%.
- Following the acquisition, debt increased to ~$5.1 B, sharpening interest expenses; GAAP net loss in early post-acquisition periods (~$33.1 M) versus positive adjusted operating income.
- Company guidance for earnings implied for 2025 adjusted EPS ~US$2.60-3.00 with revenues in the range of $7.5-7.8 B per TipRanks summary.
- Regulatory hurdles: divestiture of over 100 stores to gain approval, FTC actions, legal rulings that have intermittently stopped or delayed the deal. [0news12]