Sleep Well with Smart Beds?

11/05/2019 5:00 am EST

Focus: CONSUMER

Richard Moroney

Editor, Dow Theory Forecasts

Sleep Number (SNBR) offers smart beds that track a sleeper’s movement, breathing rate, and habits, collecting and monitoring thousands of data points every night, explains Richard Moroney in his specialized small-cap advisory service, Upside.

The mattresses generate a daily score based on the quality and quantity of sleep. Robust demand, product launches, and steady store expansion are driving profit growth. The company expects to operate nearly 610 stores across 50 states by year-end, a 5% increase from a year earlier.

Shares rallied on strong September-quarter results and encouraging guidance. Per-share earnings jumped 81% and topped expectations by 19%, as sales rose 14% to a record $475 million.

Consensus estimates project per share profits will jump 36% to $2.61 for full-year 2019, even though December- quarter earnings are expected to fall 9% to $0.74. For 2020, the consensus calls for per-share earnings of $2.95, up 13%. Revenue should climb 7%.

The shares trade 28% below their five-year average P/E. Should the stock return to its historical norm, the shares would trade at $74 using the 2020 earnings estimate, implying 54% upside potential. Sleep Number, with a year-ahead estimated P/E nearly 15% below its 10-year norm, is being initiated as a Buy.

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