Cantor Downgrades Lumber Liquidators, Slashes Targets On 'Too Many' Risks

In a report published Tuesday, Cantor Fitzgerald analysts downgraded the rating on Lumber Liquidators Holdings, Inc. LL from Buy to Hold. The price target was lowered from $42 to $26. The analysts believe that the company is facing several regulatory and legal risks at present. "We don't think LL's business model is broken, and we continue to believe its value proposition and broad assortment will drive a sales recovery and market share gains over the long term. Our near-term view has become much cloudier though, as LL faces uncertain outcomes from multiple regulatory and legal issues," the Cantor Fitzgerald report stated. Chinese laminates accounted for a little over 14 percent of the company's total sales for the first two months of the year. However, with penetration dropping through March and April, Lumber Liquidators discontinued the sales of all laminates made in China on May 7. This, the analysts believe, could impact the company's top line negatively. "We think visibility into how successful LL will be transitioning customers to other products is limited at best. We have seen the negative publicity snowball over the last few months, particularly as more lawsuits surface," the analysts said. While the company is now sourcing its laminates from the US and Europe, the analysts expressed their concern regarding the impact of the increase procurement costs on the margins. In addition, the analysts believe that the "balance of look to value" is not at par with "the assortment LL sourced from China." Moreover, with 103 class action lawsuits against the company as of April 27, investors are more likely to be waiting for a formal regulatory ruling before investing in Lumber Liquidators.