TEMPUR-PEDIC $33.39 (New York symbol TPX; TSINetwork Rating: Speculative) (800- 878-8889; www.tempurpedic.com; Shares outstanding: 59.5 million; Market cap: $2.0 billion; No dividends paid) plans to buy rival Sealy Corp. (symbol ZZ on New York) for $1.3 billion.
Sealy, which was founded in 1881, makes a wide range of spring-coil beds under the Sealy, Sealy Posturepedic, Sealy Embody, Stearns & Foster and Bassett brands.
The purchase lets Tempur-Pedic diversify into the market for traditional spring-coil beds. Right now, the company manufactures and distributes therapeutic mattresses and pillows made from its Tempur material. But that’s become a more competitive market because other mattress makers have introduced many new products and supported them with aggressive promotions.
Tempur-Pedic’s long-term prospects are sound, and the Sealy purchase is a positive. As well, the stock now trades at a low 11.9 times the company’s forecast 2012 earnings of $2.80 a share.
However, for now, we still see Tempur-Pedic as a hold.
