Select Comfort Corp. – Value Analysis (NASDAQ:SCSS) : September 21, 2016

Capitalcube gives Select Comfort Corp. a score of 63.

Our analysis is based on comparing Select Comfort Corp. with the following peers – Tempur Sealy International Inc, LaZBoy Incorporated, Leggett & Platt, Incorporated, Hooker Furniture Corporation, Ethan Allen Interiors Inc., Flexsteel Industries, Inc., Haverty Furniture Companies, Inc., Restoration Hardware Holdings, Inc. and Nova Lifestyle, Inc. (TPX-US, LZB-US, LEG-US, HOFT-US, ETH-US, FLXS-US, HVT-US, RH-US and NVFY-US).

Investment Outlook

Select Comfort Corp. has a fundamental score of 63 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • With respect to peers, relative outperformance over the last year is in contrast to the more recent underperformance.
  • Select Comfort Corporation currently trades at a higher Price/Book ratio (6.55) than its peer median (2.06).
  • The market expects SCSS-US to grow faster than its peers and for the company to improve its current ROE.
  • SCSS-US has relatively low net profit margins while its asset efficiency is relatively high.
  • Changes in annual revenues are in line with its chosen peers but lags in terms of earnings suggesting that the company is less cost conscious and may be spending for growth.
  • Over the last five years, SCSS-US‘s return on assets has declined from above median to about median among its peers, indicating declining relative operating performance.
  • Company appears to give away relatively high gross margins to relatively high operating costs suggesting a differentiated product portfolio with low pre-tax margins relative to peers.
  • While SCSS-US‘s revenues growth has been around the peer median in recent years, the market seems to see faster growth ahead and gives its shares a higher than peer median P/E ratio.
  • The company’s level of capital investment is relatively low and suggests it is milking the business.
  • SCSS-US has the financial and operating capacity to borrow quickly.

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Leverage & Liquidity

SCSS-US has the financial and operating capacity to borrow quickly.

  • With debt at a relatively low 1.59% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 14.27%), and a well-cushioned interest coverage level of 60.65x, SCSS-US can probably borrow quickly. We classify the company as Quick & Able in terms of its capacity to raise additional debt.
  • Of the 9 chosen peers for the company, only 8 of the stocks have an outstanding debt balance. Companies with no debt include FLXS-US.

SCSS-US has maintained its Quick & Able profile from the recent year-end.

  • SCSS-US‘s interest coverage is its lowest relative to the last five years and compares to a high of 1,919.74x in 2014.
  • The decrease in its interest coverage to 60.65x from 447.48x (in 2015) was also accompanied by a decrease in its peer median during this period to 34.86x from 36.29x.
  • Interest coverage fell 385.39 points relative to peers.
  • SCSS-US‘s debt-EV is its highest relative to the last five years and compares to a low of 0% in 2015.
  • The increase in its debt-EV to 1.59% from 0% (in 2015) was also accompanied by an increase in its peer median during this period to 14.27% from 8.42%.
  • Relative to peers, debt-EV fell 4.26 percentage points.

Access the detailed analysis for Select Comfort Corp.

Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Tempur Sealy International Inc 35.07 1.27 3.84 16.07
LaZBoy Incorporated 0.05 3.1 258.24 14896.51
Leggett & Platt, Incorporated 13.79 1.97 14.09 55.11
Hooker Furniture Corporation 18.11 3.58 51.93 42.74
Ethan Allen Interiors Inc. 4.62 2.01 55.12 126.38
Flexsteel Industries, Inc. 0 5.29 515.77 567.09
Haverty Furniture Companies, Inc. 14.75 2.13 17.79 94.44
Restoration Hardware Holdings, Inc. 34.89 2.74 3.12 26.26
Nova Lifestyle, Inc. 52.64 3.41 1.52 38.5
Select Comfort Corporation 1.59 0.72 60.65 1258.24
Peer Median 14.27 2.43 34.86 74.77
Best In Class 0.05 5.29 515.77 14896.51

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Company Profile

Select Comfort Corp. designs, manufactures, markets, and distributes beds, proprietary beds, and other sleep-related accessory products. It offers beds under the brand name Sleep Number. The company was founded by Robert Walker and JoAnn Walker in 1987 and is headquartered in Minneapolis, MN.

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