Select Comfort Doesn't Need Tempur Sealy

Mattress makers were as bouncy as box springs on Thursday. Shares of Tempur Sealy International (NYSE: TPX) and Select Comfort (NASDAQ: SCSS) moved higher, up 4% and 11%, respectively, on reports that the two companies are working on a merger.

A combination of the two iconic mattress makers sense. Traditional mattress manufacturers are being disrupted by more nimble players selling directly to consumers. Casper is leading the way with the e-commerce-fueled "bed in a box" niche, and two weeks ago, it finalized $170 million in funding led by cheap-chic retailer Target (NYSE: TGT).

Target was reportedly in talks to acquire Casper, but it'll settle for a piece of the fast-growing upstart instead. Target recently began stocking Casper's mattresses, pillows, and sheets. There are also plenty of other brands among the best sellers through leading online retailers. Compare the prices and customer reviews to traditional bedding specialists and you can see why Select Comfort and Tempur Sealy may be discussing a combination. Tempur Sealy needs the smaller Select Comfort. However, Select Comfort may not necessarily need Tempur Sealy.

Sleep on it

Tempur Sealy is in a funk. Sales were slightly lower last year, and analysts see a sharp decline in 2017. It's another story at Select Comfort, as the bedding company behind the Sleep Number air-chambered mattress grew its top line by 12% in its latest quarter. Wall Street pros see growth continuing for the balance of this year.

Tempur Sealy may command double the market cap of Select Comfort and roughly double the net sales projections for 2017, but it lacks the catalysts that Select Comfort has in its arsenal. Select Comfort's Sleep Number beds are unique given the adjustable nature of the air-chambered mattress firmness. The platform is also opening the door for Select Comfort's new Sleep Number 360 bed that's being billed as the industry's first smart bed.

Sleep Number 360 mattresses use intelligent biometrics to adjust the bedding firmness based on sleep quality. High-end models will even detect snoring and adjust the mattress height in response. Tempur Sealy's product lines aren't chopped liver, but not as distinctive as what Select Comfort brings to the table.

The market also is clearly siding with Select Comfort these days. Shares of Tempur Sealy slipped last year, and are trading lower year to date even after the recent rally. Select Comfort inched slightly higher in 2016, and the stock's trading 57% higher so far this year. Select Comfort investors will rightfully demand a juicy premium, and given the stock's momentum, the real victory here will be if it doesn't get saddled down with Tempur Sealy.

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Rick Munarriz owns shares of Select Comfort and Target. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.