Will This Downgrade Hurt Mattress Firm Holding (MFRM) Stock Today?

NEW YORK (TheStreet) -- Mattress Firm Holding Corp.  (MFRM) shares were downgraded to "hold" from "buy" by analysts at Keybanc. The company's $50 price target was also removed on Monday.

Mattress Firm Holding shares are down -0.13% to $44.88 in pre-market trading today.

"Given a significant new product rollout schedule this spring, we see unique risk to 1Q results and are lowering our estimate. Our new EPS estimates are below consensus for 2014 and 2015. As a result of valuation and the near-term potential risk to estimates, we are downgrading shares to 'hold' from 'buy'," said analysts.

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Separately, TheStreet Ratings team rates MATTRESS FIRM HOLDING CORP as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate MATTRESS FIRM HOLDING CORP (MFRM) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, growth in earnings per share and good cash flow from operations. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 5.9%. Since the same quarter one year prior, revenues rose by 20.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • MATTRESS FIRM HOLDING CORP has improved earnings per share by 13.6% 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 year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, MATTRESS FIRM HOLDING CORP increased its bottom line by earning $1.54 versus $1.18 in the prior year. This year, the market expects an improvement in earnings ($1.95 versus $1.54).
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 28.66% over the past year, a rise that has exceeded that of the S&P 500 Index. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
  • 39.61% is the gross profit margin for MATTRESS FIRM HOLDING CORP which we consider to be strong. Regardless of MFRM's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 2.76% trails the industry average.
  • MFRM's debt-to-equity ratio of 0.67 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.34 is very low and demonstrates very weak liquidity.
  • You can view the full analysis from the report here: MFRM Ratings Report
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