What: Tempur Sealy International Inc. (NYSE:TPX) investors were sleeping soundly last month as shares of the mattress-maker jumped 15% according to data from S&P Capital IQ, helped by a strong earnings report.
So what: As you can see from the chart above, Tempur Sealy shares soared 6% on July 30 thanks to a better-than-expected earnings report. The world's largest bedding provider said that adjusted earnings flipped from a loss a year ago to a profit of $0.53 a share in the second quarter, topping expectations of $0.45 a share. Net sales increased 10.9% on a constant-currency basis to $764.4 million, ahead of the consensus at $750.1 million, and gross margin -- an important figure for consumer products companies -- improved 140 basis points to 38.9%. The strong quarter also led to increased full-year guidance as the company now projects full-year sales of $3.125 billion to $3.175 billion and EPS of $3.00 to $3.20, an increase in profits of over 15% at the midpoint of the range from the year before.
Now what: Tempur Sealy's stock has soared since the 2013 merger of Tempur-Pedic and Sealy, and is up more than 25% since May of this year. On a macro level, the improving economy and housing market have provided a boon for the company as mattress sales are tied to discretionary income and new home purchasing.
On a valuation level, Tempur Sealy's run may be reaching an end, however, as the stock is now valued at a P/E of around 25 based on 2015's projected earnings. As the company continues to take advantage of synergies from the mergers, I'd expect profitability to improve and growth to remain steady, but with the stock already up 40% this year, a continued increase seems limited.
If the stock can put up more earnings beats like this one, it should continue to move higher, but I wouldn't bet on another 15% pop in just one month.