Wedbush analysts have upgraded Select Comfort Corp. (NASDAQ:SCSS), to outperform from neutral stating the company has a much brighter future than they had previously thought. SCSS’s 12-month price target has been reiterated at $23. The stock is currently changing hands in the vicinity of $21.
Unique products
One of the reasons Wedbush is positive about the prospects of Select Comfort is that it believes that the company has clearly differentiated products. As such, the company stands a better chance of improving sales even in the highly commoditized industry that it is playing in. Among other things, Wedbush cites SCSS’s air-chamber mattresses that it says are unique. Because of unique products, SCSS is better placed to sell more mattress products than rivals, especially the larger mattress producers.
Checks reveal improving trend
The ERP implementation by Select Comfort caused challenges that lowered customer satisfaction ratings. However, analysis by Wedbush shos that SCSS is quickly recovering from the unfortunate development, especially helped by increased marketing campaigns and new satisfaction ratings by Consumer Reports and J.D. Power.
Opportunity amid challenge
Wedbush sees opportunity to buy SCSS when the issues of ERP are still around, because the negative sentiments have served to make the stock cheaper to own. In terms of operating performance, Wedbush sees SCSS being able to achieve its 2016 guidance, pushing shares higher.
Estimates
Based on its assessment of SCSS on multiple fronts, Wedbush has increased its 2016 EPS estimate for the company to $1.53 from $1.43. SCSS’s new marketing efforts should contribute to better results in 2016.
Risk to estimate
As much as Wedbush remains optimistic on the prospects of Select Comfort, it does believe that some factors beyond the control of the company can impact performance, possibly leading to the company missing or exceeding its estimates. Such factors include marketing effectiveness, execution, rising expenses and discounts that may lower gross margins.
