One of 5 finalists chosen out of 25 competitive teams to present to equity research professionals in the 2016 CRC Stock Pitch Competition at Miami University.
2. Overview & Thesis 3
Industry Outlook 6
Key Drivers 8
Valuation
Final Thoughts
Appendix
15
17
18
3. Overview &
Thesis
Industry
Outlook
Key Drivers Valuation Final Thoughts Appendix 3
Investment Thesis
Expanding the market particularly in the luxury and e-
commerce segments
Restructuring of management; led by H partners will propel
the company forward
Strong brand reputation will perpetuate growth in new
segments and sustain success in established areas
We recommend Tempur-Sealy as a BUY with a 12 month price
target of $74.00 representing a 26.97% upside from their current
price
4. 4Overview &
Thesis
Industry
Outlook
Key Drivers Valuation Final Thoughts Appendix
Headquartered in Lexington, Kentucky
Develops, manufactures, and markets
mattresses, foundations, pillows and other
products
Operating in over 100 countries worldwide
Description & Operations Brands
Manufacturing Distribution
Company Overview
Sources: Company 10-K, Investor Presentation, Earnings Call
Highly Recognized brands include Tempur,
Sealy, Tempur-Pedic, Sealy Posturepedic,
Stearns & Foster, and Cocoon by Sealy
Brands are complementary and fully cover
the market
26 company operated worldwide
manufacturing facilities
Bedding represents 91.6% of net sales
Other products such as pillows, mattress
covers, sheets, cushions, etc. make up 8.4%
of net sales
45% of sales come from bedding specialty
retail
Furniture retail comprises 30%
Department stores make up 10%
Direct-to-customer growing at twice the
rate of third-party retail
5. 5Overview &
Thesis
Industry
Outlook
Key Drivers Valuation Final Thoughts Appendix
Higher ASP from growing luxury mattress
demand
Emerging e-commerce presence
Rise of specialty bedding retail
Trends Market Share
Consolidation Non U.S Mattress Sales
Industry Overview
Sources: TheRobinReport
Serta and Simmons in 2012
Tempur-Pedic and Sealy in 2012
Mattress Firm and Sleepy’s in 2015
12.8
14
15.7
16
16.6
17.3
11
12
13
14
15
16
17
18
2009 2010 2011 2012 2013 2014
TotalSalesinBillionsof$
Years
32%
39%
24%
5%
Tempur Sealy
Simmon
Others
Select Comfort
6. Overview &
Thesis
Industry
Outlook
Key Drivers Valuation Final Thoughts Appendix 6
Porter’s Five Forces Analysis
Power of Suppliers: Low
Commodity inputs with low
switching costs
Power of Customers:
Medium
Few alternative products, fairly
dependent on economic
climate
Threats of Entrants:
Medium
Economies of scale, brand
identity, e-commerce
Threat of Substitutes: Low
Few alternatives
Rivalry Among
Competitors: Medium
Few major players, rely
heavily on innovation and
brand loyalty
7. 7Overview &
Thesis
Industry
Outlook
Key Drivers Valuation Final Thoughts Appendix
Per Capita Disposable Income Value of Residential Construction
World Price of Crude World Price of Steel
Industry Tailwinds
Source: US-Mattress.com Survey Results
300
350
400
450
500
550
600
650
700
750
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
ValueinBillionsof$
Years
20
30
40
50
60
70
80
90
100
110
2005 2007 2009 2011 2013 2015 2017 2019
PricePerBarrel
Year
34000
35000
36000
37000
38000
39000
40000
41000
42000
43000
44000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
PerCapitaDisposableIncome
Years
150
160
170
180
190
200
210
220
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Index
Year
8. 8Overview &
Thesis
Industry
Dynamics
Key Drivers Valuation Final Thoughts Appendix
Full Coverage of Market Segmented Revenue
Recently launched “bed in a box” brand to
challenge Casper and other e-commerce
startups
Direct to consumer is Tempur-Sealy’s
fastest growing channel
Brand Portfolio
Cocoon
Luxury
60%
Mid
Price
25%
Value
15%
9. 9Overview &
Thesis
Industry
Outlook
Key Drivers Valuation Final Thoughts Appendix
Bed in a Box Luxury
Expanded Markets
Sources: The Age Curve, Investor Presentation
Segment has seen disruptions from Casper
and other bed in a box, ecommerce retailers
Direct to consumer is the fastest growing
channel for Tempur-Sealy
Growth driven by aging population and
higher per capita disposable incomes
Latex mattresses…all natural mattresses
are meeting the demands of Boomers who
can’t sleep and driving average-unit sale
prices through the roof”
“The bedding and mattress business is the
bright spot in the overall furniture
business”
-- Kenneth W. Gronbach, author of
The Age Curve: How to Profit from
the Coming Demographic Storm
10.00%
15.00%
20.00%
25.00%
Age 18-34 Brand Preference
Tempur-Pedic Sealy Simons Serta Other
10. 10Overview &
Thesis
Industry
Outlook
Key Drivers Valuation Final Thoughts Appendix
Brands Most Likely to be Bought Brand Preference by Age Group
Sleep Quality by Gender Advertising Investments
Strong Brand Reputation
Sources: US-Mattress.com Survey Results, Investor Presentation
14%
29%
44%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
50.00%
Select Comfort Simon Serta Tempur Sealy
%ofConsumerPreferance
Brands
2
3
4
5
Tempur-Pedic Sealy Serta Simmons Other
Excellent
Average
Poor Brands
Men Women
274
327
361
0
50
100
150
200
250
300
350
400
2013 2014 2015
Advertisinginmillionsof$
Year
10.00%
15.00%
20.00%
25.00%
18 - 34 35 -52 55+
BrandPreference
Age Group
Tempur-Pedic Sealy Simons Serta Other
11. 11Overview &
Thesis
Industry
Outlook
Key Drivers Valuation Final Thoughts Appendix
Old Management New Management
Scott Thompson H Partners
Management & H Partners
Sources: Forbes, H Partners
TPX underperformed peers
CEO paid $18M to oversee $1.6B loss of
equity in a 3 year span
2012-2015 Long-term earnings
expectations declined by 60%
2012: Stock dropped 40%
CEO: Scott Thompson
2 Board Members were replaced
Aspirational Plan
Previously CEO of Dollar Thrifty until
purchased by Hertz in 2012
Founder of Group 1 Automotive; NYSE
and Fortune 500 Company
New York Activist Hedge Fund
CEO: Rehan Jaffer
Fund went from $15M to $1.6B in a
decade
Protégé of Dan Loeb at Third Point
Successful turnaround of Six Flags
12. Overview &
Thesis
Industry
Outlook
Key Drivers Valuation Final Thoughts Appendix 12
Management Aspirational Plan
Source: H Partners Presentation
Goal: Create significant stockholder value
Over 1,000,000 PRSUs granted to 12 executives
+ 200 additional employees IF…
EBITDA increases 200M by 2017 (current:
400M)
All PRSUs will vest if EBITDA of $650 is
achieved for 2017
One third will vest if completed by 2018
13. 13Overview &
Thesis
Industry
Outlook
Key Drivers Valuation Final Thoughts Appendix
Strengths Weaknesses
Opportunities Threats
SWOT Analysis
Source: Investor Presentation, 10-K
Strong management team
Strong brand reputation
Free-cash-flow
Cyclical industry
Reliance on top customers
Leverage profile
Global industry growth
Bed in a box segment
Favorable U.S macroeconomic conditions
Aging U.S population
E-Commerce
Danish tax issue
Exchange rates
14. 14Overview &
Thesis
Industry
Outlook
Key Drivers Valuation Final Thoughts Appendix
Comparable Companies Analysis Football Field
DCF (Perpetuity & EBITDA Methods) Sensitized Valuations
Valuation
EV/Sales, P/E, and EV/EBITDA were used
to derive an implied share price
Implied share price range of $47.68-$73.53
WACC of 8.3% was used
Perpetuity growth was assumed to occur at
2.0%
EBITDA Exit Multiple was calculated to be
13.4x
$40.00 $50.00 $60.00 $70.00 $80.00 $90.00 $100.00
Exit Multiple
Perpetuity
Comparables - EV/EBITDA
Comparables - EV/Sales
Comparables - P/E
Perpetuity Growth Rate
$78.33 1.7% 1.9% 2.0% 2.2% 2.3%
WACC
9.0% $64.48 $65.90 $67.39 $68.93 $70.55
8.8% $67.61 $69.15 $70.76 $72.45 $74.21
8.5% $70.98 $72.65 $74.40 $76.23 $78.15
8.3% $74.61 $76.43 $78.33 $80.34 $82.44
8.0% $78.52 $80.51 $82.60 $84.79 $87.10
7.8% $82.76 $84.94 $87.23 $89.64 $92.19
7.5% $87.37 $89.77 $92.29 $94.95 $97.77
Exit Multiple
$89.17 12.2x 12.8x 13.4x 14.0x 14.6x
WACC
9.0% $78.18 $81.99 $85.80 $89.60 $93.41
8.8% $79.20 $83.05 $86.91 $90.76 $94.61
8.5% $80.24 $84.14 $88.03 $91.93 $95.82
8.3% $81.29 $85.23 $89.17 $93.11 $97.05
8.0% $82.35 $86.34 $90.33 $94.31 $98.30
7.8% $83.43 $87.47 $91.50 $95.53 $99.56
7.5% $84.53 $88.61 $92.69 $96.77 $100.85
15. 15Overview &
Thesis
Industry
Outlook
Key Drivers Valuation Final Thoughts Appendix
Perpetuity Growth Method Calculation of WACC
EBITDA Exit Multiple Method Comparable Companies Analysis
Valuation
Perpetuity Method
Present Value of Projection Period $1,207
2020 Free Cash Flow $367
Perpetuity Growth Rate 2.0%
Terminal Value $7,142
Years 5.0
Present Value of Terminal Value $4,800
Total Enterprise Value $6,007
Less: Debt $1,273
Plus: Cash $154
Equity Value $4,888
Per Share Price $78.33
WACC Calculation
Total Debt 1,273 25.8%
Totel Equity
3,671
74.2%
4,944 1
Beta 1.38
Risk free Rate 1.72%
Market Risk Premium 6.00%
Cost of Equity 10.00%
Pre-tax Cost of Debt 5.05%
Tax Rate 35%
Cost of Debt 3.28%
WACC 8.3%
EBITDA Exit Multiple Method
Present Value of Projection Period $1,207
2020 EBITDA $610
EBITDA Multiple 13.4x
Terminal Value $8,148
Years 5.0
Present Value of Terminal Value $5,477
Total Enterprise Value $6,684
Equity Value $5,564
Per Share Price $89.17
Name Ticker Market Cap EV
EV/EBITDA
LTM 2014A 2015A
Tempur Sealy TPX $3,584.2 $4,897.5 12.6x 13.4x 15.0x
Mattress Firm Holding Corp
MFRM $1,551.9 $2,241.1 8.1x 12.8x 19.8x
Select Comfort Corp SCSS $907.7 $871.5 6.5x 8.4x 8.8x
Tuesday Morning Corp TUES $353.9 $318.6 11.4x 15.2x 15.0x
Armstrong World Industries AWI $2,309.5 $3,067.7 9.5x 12.9x 10.8x
Leggett & Platt Inc LEG $6,567.0 $7,274.7 10.3x 12.4x 12.4x
16. Overview &
Thesis
Industry
Outlook
Key Drivers Valuation Final Thoughts Appendix 16
Final Thoughts
Main Points
Expanding the market particularly in the luxury and e-
commerce segments
Restructuring of management; led by H partners will propel
the company forward
Strong brand reputation will perpetuate growth in new
segments and sustain success in established areas
We recommend Tempur-Sealy as a BUY with a 12 month price
target of $74.00 representing a 26.97% upside from their current
price