Morgan Stanley Sees Some Upside In Lumber Liquidators
Shares of Lumber Liquidators (NYSE: LL) are down 21.3 percent following a massive cut in second quarter and full year guidance. Morgan Stanley cut its price target from $84 to $66, which would give 15 percent upside from the current price.
Analyst Simeon Gutman said the second quarter weakness was primarily driven by macro trends, but one third can be attributed to the company specifically.
Regarding the macroeconomic impact, Gutman wrote, “Compounding the weather and macro was inventory disruption. LL enforced higher standards to all of its mills in the areas of quality control, record keeping and processes. This caused inventory shortages in top selling product categories such as laminates, vinyl plank and engineered hardwoods (which are sourced heavily in Asia). Demand for this product was there, but the lack of inventory caused LL to leave an estimated $18 million in sales on the table. This helps explain the comp deceleration in non weather stores (+9.8% to -2.1%).”
Gutman also commented on contraction in margins, which fell 90 basis points. The note stated that discussion with management confirms that the drop in margins is due to the product mix and not a larger structural issue.
Morgan Stanley has a $66 price target on Lumber Liquidators, which was derived with a PE multiple of 20 on 2015 expected earnings.
Latest Ratings for LL
|Dec 2015||Goldman Sachs||Downgrades||Neutral||Sell|
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