Ahead of the Bell: Mattress Firm gains

NEW YORK (AP) -- An analyst raised his rating for Mattress Firm on Wednesday, pleased in part that the company is going to focus on absorbing recent acquisitions.

Shares climbed nearly 5 percent in premarket trading.

Late Tuesday, Mattress Firm Holding Corp. reported that its fourth-quarter net income fell to 22 cents per share from 56 cents a year earlier, as it dealt with costs for a recent acquisition. Adjusted earnings were 30 cents per share. Revenue rose 37 percent to $258.2 million. Analysts surveyed by FactSet expected the Houston company to earn 32 cents per share on revenue of $262.1 million.

Mattress Firm bought Factor Mattress & Water Bed Outlet of Charlotte Inc. for $11.4 million in a deal that closed in December. The company is in the process of rebranding the 27 former Mattress Source stores owned by the company as Mattress Firm stores.

Budd Bugatch of Raymond James said Mattress Firm had a "so-so" quarter, but was happy that CEO Steve Stagner said the retailer's near-term focus would be on digesting its acquisitions "rather than adding to its already considerable full plate." Doing this should help profit margins, he explained.

Bugatch said he believes the shares are likely to move higher, in part because of Mattress Firm's stock price. The company's stock is up nearly 27 percent since the start of the year. The analyst said he also likes the mattress retail sector, given its appealing product margins, high inventory turns, positive cash dynamics and significant vendor support.

Bugatch lifted Mattress Firm's rating to "Outperform" from "Market Perform" and established a $37 price target.

A Mattress Firm representative could not immediately be reached for comment.

The company's stock gained $1.48, or 4.8 percent, to $32.50 before the market open.