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    TPX: A Disciplined Growth Company: January 2021

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    macaroni
    TPX has grown revenue at an annualized rate of 12.7% over the past decade through acquisitions and organic growth. It has also reduced its share count by retiring 3% of shares annually. Using a discounted cash flow model, the document estimates TPX's fair value today is $84 per share after accounting for its expected long-term growth rate, margins, share repurchases, and discounting future cash flows back to the present.

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    TPX: A Disciplined Growth Company: January 2021

    Uploaded by

    macaroni
    591 views16 pages
    TPX has grown revenue at an annualized rate of 12.7% over the past decade through acquisitions and organic growth. It has also reduced its share count by retiring 3% of shares annually. Using a discounted cash flow model, the document estimates TPX's fair value today is $84 per share after accounting for its expected long-term growth rate, margins, share repurchases, and discounting future cash flows back to the present.

    Original Description:

    Growth stock opportunity

    Original Title

    TPX-Cannibal

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    TPX has grown revenue at an annualized rate of 12.7% over the past decade through acquisitions and organic growth. It has also reduced its share count by retiring 3% of shares annually. Using a discounted cash flow model, the document estimates TPX's fair value today is $84 per share after accounting for its expected long-term growth rate, margins, share repurchases, and discounting future cash flows back to the present.

    Copyright:

    Public Domain
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    591 views16 pages

    TPX: A Disciplined Growth Company: January 2021

    Uploaded by

    macaroni
    TPX has grown revenue at an annualized rate of 12.7% over the past decade through acquisitions and organic growth. It has also reduced its share count by retiring 3% of shares annually. Using a discounted cash flow model, the document estimates TPX's fair value today is $84 per share after accounting for its expected long-term growth rate, margins, share repurchases, and discounting future cash flows back to the present.

    Copyright:

    Public Domain
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 16

    TPX: A Disciplined Growth Company

    January 2021
    ALL PER SHARE NUMBERS ARE
    PRE-SPLIT
    Over the past 10 years, TPX has grown revenue at a 12.7% CAGR

    The company achieved this through a blend of highly accretive acquisitions and disciplined organic growth

    4.0

    3.5
    TPX Revenue ($B)

    3.0

    2.5

    2.0

    1.5

    1.0

    0.5

    -
    2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E
    “Pay close attention to the
    cannibals – the businesses
    that are eating themselves
    by buying back their
    stock.”

    Charlie Munger
    Vice Chairman, Berkshire Hathaway
    In the past decade, TPX has also reduced its share count dramatically

    The shares outstanding have fallen from 74mm to 53mm today

    75
    TPX Shares Outstanding (M)

    70

    65

    60

    55

    50
    2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
    TPX is a secularly growing cannibal

    TPX grew revenue by 12.7% annualized over the past decade AND simultaneously retired 3% of its shares annually
    TPX achieved this and has a clean balance sheet today!

    2020E Ending Net Debt/EBITDA:

    1.75x
    TPX is growing faster than many beloved public consumer/technology companies

    TPX grew revenue by 12.7% annualized over the past decade which places it in an elite peer group

    10 yr. revenue CAGR 10 yr. revenue CAGR

    13.0% 8.0%

    15.5% 10.7%

    12.5%
    8.9%

    12.2%
    8.5%
    8.9%
    This peer group faces disruptive challenges to their competitive position

    Disruption threat Disruption threat


    Coke, Pepsi,
    Redbull, health Blockchain, digital
    concerns around currencies in digital
    product wallets

    Wayfair, RH is not
    vertically integrated

    Behr, PPG, Sherwin


    also digesting
    Has to grow units complex acquisition
    internationally of Valspar

    Delivery moat being


    eroded by DoorDash Starbucks, new
    and others entrants into coffee
    and bakery, COVID
    issues
    TPX’s elite peer group trades at a premium to the S&P 500

    Secularly growing cannibal 2021E


    multiple:

    35x
    With a bottoms up method, the market uses this algorithm to value growth companies

    Secular growth companies like TPX are valued using an abbreviated discounted cash flow model

    STEP 1: Project the long-term revenue growth rate forward to 2030

    STEP 2: Assume that the current margin structure and capital intensity hold

    STEP 3: Calculate implied 2030 EPS assuming historical rate of share repurchase

    STEP 4: Assume that the company trades at the long-term S&P multiple of 18x in 2030

    STEP 5: Discount the future value of the equity back to today at a 6-8% discount rate
    Step 1: Project TPX’s 2030 revenue

    This metric is calculated using Tempur’s normalized long-term growth rate of 12.7%. This implies 2030E revenue of $11.9B

    14.0

    12.0

    10.0
    TPX Revenue ($B)
    8.0

    6.0

    4.0

    2.0

    -
    2020E 2030E
    Step 2: Project TPX’s 2030 EBITDA and Capex

    Tempur currently earns a 20% EBITDA margin. Based on their heavy investments in product innovation and distribution,
    this is expected to be sustained. Capital expenditures are expected to inflate to $150MM per year

    2030E EBITDA: 2030E Capex:

    $2.38B $150M
    Step 3: Calculate TPX’s 2030E EPS

    Assume that TPX repurchases 3% of its share count annually. This implies a share count of 39MM (pre-split) in 2030
    Assume that TPX deleverages to $1B of debt at 5% interest
    Assume tax rates of 26%
    THIS IMPLIES:

    2030E EPS:

    $41
    Step 4: Calculate TPX share price in 2030 assuming it trades at a market multiple

    2030E EPS: S&P Multiple:

    $41 X 18x
    =
    2030E TPX PRICE:

    $738
    Step 5: Discount $738 2030E price back to today’s present value at 8%

    Current pre-split value of TPX per


    share in 2020:

    $342
    Split adjusted, TPX should currently
    trade at:

    $84

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