Ahead of the Bell: Tempur-Pedic rises in premarket

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NEW YORK -Shares of Tempur-Pedic International Inc. rose in premarket trading on Friday, after the company's third-quarter profit and improving business trends prompted an analyst to raise his price target on shares of the mattress and pillow company on Friday.

The stock rose $3.08, or 15 percent, to $23.79 early in the session.

After Thursday's closing bell, Tempur-Pedic said earnings rose 7 percent because of higher prices, lower commodity costs and manufacturing improvements.

Sales declined 11 percent to $224.1 million on weakness in the U.S. and abroad, but the company still raised its earnings and sales outlook for 2009.

KeyBanc Capital Markets analyst Bradley B. Thomas, who rates the stock "Buy," raised his price target to $27 from $23 on improving business trends. That target implies shares have room to rise 30.4 percent from Thursday's close of $20.71.

"We continue to view Tempur-Pedic as a strong cash flow generator with a solid balance sheet and compelling growth opportunity," Thomas wrote in a client note.

Looking to 2010, Thomas said the company will benefit from a new mattress product and advertising campaign.

SunTrust Robinson Humphrey analyst Keith Hughes said the revenue drop was the smallest year-over-year decline since the first half of 2008.

Hughes said initiatives to improve gross margin have boosted results, with the strongest source of improvement tied to manufacturing productivity.

Price increases taken earlier in the year helped, as well, he said.

Thomas, who also rates the stock "Buy," said management would not discuss future pricing but believes some prices may rise in early 2010 on some models.

2009-10-16 08:57:37