The Urethane Blog

UBS Now Covering the Mattress Sector

Purple Innovation the top pick at UBS in sweeping coverage of mattress sector

Oct. 13, 2020 7:46 AM ET|About: Purple Innovation, Inc. (PRPL)|By: Clark Schultz, SA News Editor

UBS takes up coverage on the U.S. mattress industry with four new ratings as it looks at housing as a near-term tailwind.

Analyst Atul Maheswari: “We believe the mattress sector should see strong trends over the next few quarters on the back of wallet share gains and continued strength in housing. Some of the long-term unknowns like the shift online & intense competition will likely take a backseat to unit gains over the next couple of quarters. Our top down industry model forecasts the $21 bn mattress industry growing 5.4% in 2020 followed by 4.1% in FY’21. Our 2020 estimate bakes in a -LSD decline for the ~$16.5 bn traditional channel and 35% growth for the ~$4bn DTC channel.”

Purple Innovation (NASDAQ:PRPL) is the top pick in the group from UBS. “PRPL is a profitable DTC player with several unique drivers to sustain 20-25% revenue growth and 25%+ EBITDA growth over an extended period of time. Still, it’s trading at just 13x FY’22E EBITDA and ~2x EV/Sales, which is below its consumer/retail high growth peers (FIVE/FND),” previews the firm. Coverage is launched by UBS with a Buy rating.

Tempur-Sealy International (NYSE:TPX) and Casper (NYSE:CSPR) are started off at Neutral. “We believe TPX will capitalize on industry tailwinds & should report strong trends in the near term. However, there are concerns on how it will lap these gains in 2H’21. This will likely act as an overhang on the stock. Finally, we believe CSPR needs to show better balance between sales growth & profitability for its shares to attract a higher valuation,” updates UBS.

Sleep Number (NASDAQ:SNBR) is seen as the laggard and initiated with a Sell rating. “SNBR’s lofty valuations (22x NTM P/E) coupled with mall exposure and low online penetration keeps us cautious on the name,” warns UBS.

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