The Research Note Pushing Lumber Liquidators Shares Up

In a report published Tuesday, Cantor Fitzgerald analysts initiated coverage of Lumber Liquidators Holdings Inc LL with a Buy rating and a price target of $45. Lumber Liquidators' share price has plummeted by 50 percent since the company's conference call on February 25. The pullback offers "an opportunity to invest in a differentiated, growth-driven business model at an attractive valuation," the analysts said. In the report Cantor Fitzgerald noted, "The product testing for the March 1 60 Minutes report on formaldehyde contamination in Lumber Liquidators' laminate was substantially funded by short sellers (this was admitted to by the program). The deconstructive testing methods funded by short sellers and reported by 60 Minutes are not equivalent to government testing standards - which makes sense to us, as consumers are unlikely to take apart their flooring and continue to walk around on it." The damage from the 60 Minutes report has "largely been done," and the company's brand reputation has made a marginal recovery as regulators have noted that "the testing methods used in the television piece are not the same required for compliance." However, the real risks are the pending results from federal testing on the laminates product in question and the "ongoing and potential legal headwinds," the report mentioned. Although the story has adversely impacted the company's results, the bigger concern areas are supply chain management and rampant discounting, the analysts pointed out. However, due to these issues over the past year, the company has easy y/y comps in 2015 and 2016. "Now that all distribution centers are up and running (LL tripled DC square footage last year), inventory management issues should be largely resolved," the analysts added. The analysts express optimism regarding the company's value proposition and broad assortment being able to revive sales momentum and market share gains in the longer term.