Senator Investment Group Owns 8% of Tempur Pedic

We can compare Tempur-Pedic to Select Comfort Corp. (NASDAQ:SCSS), Mattress Firm Holding Corp (NASDAQ:MFRM), and La-Z-Boy Incorporated (NYSE:LZB). We’d note that Select Comfort and Mattress Firm Holding were both up 4% on the day the FTC approved Tempur-Pedic’s takeover of Sealy, so clearly there is some expectation that reduced competition will help all parties. Select Comfort trades at only 13 times trailing earnings and 10 times forward earnings estimates, and even though its earnings have been down it might be a more value-oriented alternative in mattresses. Mattress Firm, a retailer, actually managed to hold its net income steady in its most recent quarterly report versus a year earlier and revenue was up strongly. However, at a trailing earnings multiple of 20 it is an even more popular short target than Tempur-Pedic with 20% of the outstanding shares held short. La-Z-Boy reported double-digit growth rates on both top and bottom lines in the fiscal quarter ending in January 2013 compared to the same period in the previous fiscal year, and even though its trailing P/E is 21 it might be worth looking into how sustainable that growth is.

Between the general observation that M&A activity tends to destroy shareholder value at Tempur-Pedic’s premium compared to similar companies, we’d actually avoid the stock. Select Comfort seems like a good starting point for value investors, and would also benefit from industry consolidation.

Disclosure: I own no shares of any stocks mentioned in this article.