Can Select Comfort Stock Keep Going After Last Week's 30% Pop?

By Rick Munarriz Markets Fool.com

One of last week's biggest winners wasSelect Comfort (NASDAQ: SCSS), soaring 30.2% after posting better-than-expected financial results. The bedding company behind the Sleep Number air-chambered mattress saw its net sales climb 12% to $393.9 million.Analysts were holding out for only 5% top-line growth.

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Select Comfort itself didn't offer guidance for the quarter, but back in February it was calling for sales growth for all of 2017 to come in between the mid- to high single digits. Earnings more than doubled to $0.56 a share, again blowing past Wall Street pros who were banking on a per-share profit of $0.44.

The beat on both ends of the income statement came as a surprise. Analysts had overestimated Select Comfort's earnings in back-to-back quarters before Wednesday's report. Select Comfort would also raise its profit guidance for the entire year, and that's before we even start to consider the game-changing potential of Select Comfort's new Sleep Number 360 that the mattress maker is marketing as a smart bed.

Image source: Select Comfort.

Sleep no more

Sleep Number 360 will start to be phased into Select Comfort's retail stores starting later this quarter, and it could redefine the high-end mattress market. The bed uses intelligent biometrics to adjust the firmness of the mattress based on the restlessness of the person or people using the Sleep Number bed. Some Sleep Number 360 models will allow owners to pre-warm the bed on cold nights, and high-end units will gently adjust the height of someone snoring.

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Select Comfort is pushing its earnings-per-share guidance for 2017 from between $1.20 and $1.40 to between $1.25 and $1.50. The outlook also includes a $0.15- to $0.22-per-share hit based on the launch of Sleep Number 360, a one-time expense that could make that back several times over if it's as revolutionary a mattress as it seems. Select Comfort is also sticking by its goal of hitting $2.75 a share in earnings in 2019.

Analysts generally ate up the stellar report.Piper Jaffray raised its price target from $25 to $32 after what analyst Peter Keith is portraying as Select Comfort's first "beat-and-raise" performance in two years. Stifel boosted its price target from $27 to $32, calling Select Comfort's guidance conservative.

One analyst wasn't as bullish. Curtis Nagle at BofA/Merrill sees execution risk to the Sleep Number 360 rollout next month. He thinks there's limited broad-market appeal for Select Comfort's pricey air-chambered mattresses. He's raising his price target from $18 to $21.50, but that's still well below where the stock is now after last week's run. He's sticking to his "underperform" rating. The market and many of his fellow analysts disagree, of course, given the stock's big run. Now it's time to see if the Sleep Number 360 hype train meshes with reality.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.