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NEW YORK (AP) -- A Citigroup analyst downgraded shares of Sealy Corp. on Friday, after the bedding manufacturer said high material costs and lower selling prices hurt its profit in the third quarter. Sealy on Thursday reported 27 percent lower quarterly earnings as its average unit selling price fell 8 percent. Citigroup's Stephen Kim downgraded the stock to "Sell" from "Buy" and lowered his price target to $13 from $19. Kim said competition, especially from rival Tempur Pedic, is strong in Sealy's high-end market, which produces its best margins. "Sealy's core position in high-end innerspring mattress is clearly subject to significant competitive pricing pressures that have increased over the last couple of quarters due, we believe, in no small part to Tempur Pedic's success in that price point," Kim wrote in a client note. Looking ahead, Kim said he cannot think of any near-term catalyst that would lift margins higher. Goldman Sachs analyst Albert Kabili, who lowered his price target to $13 from $16.50, expects investors to focus on poor margins that were much worse than expected. Kabili said turmoil in the housing market may persist in 2008, which leaves Sealy's performance dependent on new products that aren't expected to be revealed until the first quarter. Kabili kept a "Neutral" rating on the stock and said the company remains a leader in the industry and has good long-term fundamentals.
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