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Select Comfort Corp. (SCSS), Tempur-Pedic International Inc. (TPX), Leggett & Platt, Inc. (LEG): Which Stock Will Help You Sleep at Night?

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Sweet dreams (are made of this),” the Allen Toussaint song sung memorably by the Eurythmics’ Annie Lennox is something people yearn for across the seven seas. Over 100 different chronic sleep disorders affect at least 30 million Americans over 13.

Maybe you’ve missed an occasional night’s sleep, but for many it’s a serious health and safety issue and the most precious commodity around. Serious enough that the market for the sleep-deprived for both prescription and OTC medicines, white noise machines, bedding etc. is a multi-billion dollar industry.

Sleep may be elusive but several companies claim their products are the answer to your tossing and turning. First among them are the mattress stocks Select Comfort Corp. (NASDAQ:SCSS)Tempur-Pedic International Inc. (NYSE:TPX), and springs manufacturer Leggett & Platt, Inc. (NYSE:LEG).

Sweet dreams or nightmare stocks?

If your mattress is a third as old as the 1983 Sweet Dreams video you probably need a new one. However, bed sets being put forth by Select Comfort Corp. (NASDAQ:SCSS) and Tempur-Pedic International Inc. (NYSE:TPX) are guaranteed for 20-25 years. They ought to be as they can cost as much as an economy car. Top-of-the line Sleep Number beds, owned by Select Comfort, run $4,699 on sale while premium Tempur-Pedics can run up to $7,999.

Tempur Sealy racks up loads of complaints for its Tempur-Pedic International Inc. (NYSE:TPX) beds citing chemical smells, lumpiness, mold, and customer service nightmares. Granted, mattresses are a very personal consumer durable, but overall ratings weren’t at all good for Tempur-Pedic beds.

Tempur Sealy also owns Stearns & Foster as part of the Sealy and Tempur-Pedic International Inc. (NYSE:TPX) merger in May 2013. Sealy and Stearns and Foster are primarily innerspring brands although Sealy (and several other companies) are offering hybrid innerspring/gel foam mattresses which are getting buzz as better for one’s sex life.

Sleeplikethedead.com, an independent, non-compensated review site, gives a 78% owner satisfaction rating for Select Comfort Corp. (NASDAQ:SCSS)’s Sleep Number beds. But Tempur-Pedic numbers are slightly better at 81% owner satisfaction improving due to the company’s introduction of lower price point memory foam mattresses. In general, innerspring mattresses like Sealy’s Posturepedic and Stearns & Foster brands have lower owner satisfaction scores at 65% and 59% respectively.

You’re wondering why the emphasis on reviews… because mattresses and mattress stores make up a significant number of complaints to the Better Business Bureau. Consumer Reports noted that 40% of mattress buyers experience buyers’ remorse and urges 30 days of due diligence when mattress shopping.

Both Tempur Sealy and Sleep Number have significant privately held competition with many of those like Bedinabox.com and Ikea getting much higher satisfaction ratings at slightly lower price points. Number three in the industry, Simmons Bedding, is a major competitor as it offers both Simmons and Serta brand mattresses. Costco‘s private label mattresses outperformed Tempur-Pedic in the Consumer Reports 2013 ranking.

Do you want to get into bed with them?

The bedding industry is challenging at best with Simmons entering bankruptcy in 2009 only to emerge owned by the same private equity firm that owns Serta. These are big ticket items that consumers need but only seven-ten years at a stretch. They don’t call mattresses consumer durables for nothing…they’re supposed to last.

Tempur Sealy, after the merger, is now the largest global bedding manufacturer, but trades at a 45.22 trailing P/E compared to Select Comfort Corp. (NASDAQ:SCSS)’s 19.51 and the PEGs are 1.32 and 1.35 respectively. Margins and sales have been declining at Tempur Sealy. The next earnings release will be critical to discover if expected $40 million in cost saving synergies is working out.

Tempur-Pedic International Inc. (NYSE:TPX) is already up 84% over the last year and price/book is an astounding 102.03 with a 14.80% short interest. Total debt is $2 billion to $91.50 million total cash. All that would keep me tossing and turning.

TPX Return on Equity data by YCharts

Select Comfort Corp. (NASDAQ:SCSS) is a better value at a lower P/E and Piper Jaffray reiterated its Outperform on July 11 with a $31 price target citing its new Dual Temp line, its most recent innovation, gaining traction expecting it to outperform for the rest of the year.

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