NEW YORK (
) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, notable return on equity and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, generally poor debt management and weak operating cash flow.
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Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 30.6%. Since the same quarter one year prior, revenues rose by 18.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Household Durables industry and the overall market, TEMPUR PEDIC INTL INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- TEMPUR PEDIC INTL INC has improved earnings per share by 26.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, TEMPUR PEDIC INTL INC increased its bottom line by earning $3.18 versus $2.18 in the prior year. For the next year, the market is expecting a contraction of 15.1% in earnings ($2.70 versus $3.18).
- The debt-to-equity ratio is very high at 5.63 and currently higher than the industry average, implying that there is very poor management of debt levels within the company. Regardless of the company's weak debt-to-equity ratio, TPX has managed to keep a strong quick ratio of 1.72, which demonstrates the ability to cover short-term cash needs.
- Net operating cash flow has decreased to $44.56 million or 20.03% when compared to the same quarter last year. Despite a decrease in cash flow TEMPUR PEDIC INTL INC is still fairing well by exceeding its industry average cash flow growth rate of -30.68%.
Tempur-Pedic International Inc. engages in the manufacture, marketing, and distribution of bedding products in North America and internationally. It offers mattresses, pillows, and adjustable bed bases, as well as various cushions and other comfort products. The company has a P/E ratio of 6.3, equal to the average consumer durables industry P/E ratio and below the S&P 500 P/E ratio of 17.7. Tempur-Pedic International has a market cap of $1.35 billion and is part of the
industry. Shares are down 60% year to date as of the close of trading on Wednesday.
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-- Written by a member of TheStreet Ratings Staff
TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.