There's a good chance you've been a customer of Wednesday's IBD Stock Of The Day without even realizing it. Somnigroup International, the world's largest mattress company, is nearing a breakout after already topping an early buy point.
The company owns the Tempur-Pedic, Sealy, Stearns & Foster and Sleepy's mattress brands plus Sherwood Bedding. It also operates the Tempur Sealy, Mattress Firm, Sova and Dreams mattress stores.
Lexington, Ky.-based Somnigroup offers its products in more than 100 countries, selling through some 2,800 stores plus e-commerce platforms. It operates 71 factories worldwide.
The company was known as Tempur Sealy International until it acquired Mattress Firm Group in February for about $5 billion and rebranded itself as Somnigroup International.
Second-quarter results, reported Aug. 7, were mixed. Adjusted earnings fell 16% to 53 cents a share, above analyst estimates. Sales increased 52.5% to $1.88 billion, primarily driven by the inclusion of $948.8 million of Mattress Firm sales. Analysts had been expecting $1.892 billion, according to FactSet.
The Tempur Sealy North American business raised prices 2% to offset tariff impacts, the company told analysts in its conference call. Somnigroup also raised its full-year earnings outlook to $2.40 to $2.70 per share.
Mattress Firm Parent's Market Share
The company is poised to take advantage of its rivals' difficulties, UBS analyst Dan Silverstein said in a note to clients last week.
Serta Simmons, one of Somnigroup's largest competitors, emerged from Chapter 11 bankruptcy in June 2023 and has made some leadership changes.
"Our sense from speaking with industry participants is that while performance has stabilized a bit, the company has lost meaningful market share over the past few years," the analyst said.
Meanwhile, Sleep Number is in the early stages of a turnaround. UBS estimates Sleep Number still represents about 15% of sales at Mattress Firm, providing ample opportunity for Somnigroup brands to take additional share.
"We think industry demand has continued to recover recently," Silverstein added. "(Somnigroup) brands are performing well at most retailers. In our most recent round of checks, bedding retailers spoke to continued sequential improvement in mattress sales in recent months."
The analyst has a buy rating on SGI stock and a 91 price target.
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Earnings Growth Seen Returning, Ramping Up
The company will release third-quarter results on Nov. 6 before the market opens.
Analysts polled by FactSet expect earnings per share of 86 cents, an increase of 4.4% year over year. That would end two quarters of year-over-year declines. Analysts expect EPS growth to accelerate to 12%, 20% and 35% over the next three quarters.
Third-quarter sales are expected to climb 58.4% to $2.059 billion. That would expand an accelerating trend in which quarterly sales went from modest declines to gains of 2%, 3%, 35% and 52%.
Losses in 2023 and moderate profit growth since then explain why the EPS Rating is only 44. The Composite Rating, which includes the EPS Rating, is 80 out of 99.
Mattress Firm Stock Analysis
But the chart action is bullish. Somnigroup stock has found support at its 10-week moving average as it forms a flat base. The buy point is 88.15. The relative strength line is nearing new highs as well.
Shares flashed an early buy signal on Tuesday as it crossed the short-term high of 85.73.
The stock has a 21-day average true range (ATR) of 2.09%. The average true range, available on IBD MarketSurge, gauges the characteristic breadth of a stock's behavior. Stocks with a high ATR tend to make large price moves that can trigger sell rules. Stocks with lower ATRs tend to make more incremental moves.
With the S&P 500 and Nasdaq still in a power trend, investors can buy stocks with ATRs up to 8%, though they should not be too concentrated in such stocks.
