Lumber Liquidators' Legal Overhangs Still Remain

Quarterly Results

However, cash burn increased and the quarterly results came in short of consensus expectations.

"Trends are improving in July as comparisons ease, but the company will need to more aggressively drive traffic and improve conversion to turn the business, leading us to tick down near-term estimates," analyst Seth Basham wrote in a note.

The hardwood flooring retailer "ended the quarter with $12.7 million in cash and equivalents, and $53.7 million available on its revolver, subject to potential limitations, for total liquidity of $66.4 million."

Legal Concerns Remain

"Liquidity appears adequate for now, and lower probability of a worst case scenario on the back of the CDC's and CSPC's findings leads us to raise our target price to $15 (from $13). However, the outcome of the Multi District Litigation (MDL) remains a key overhang," Basham highlighted.

Related Link: Wedbush Says Lumber Liquidators' CPSC Ruling "Not Surprising," But An Incremental Positive

Basham noted that despite company having other assets such as real estate to provide liquidity, Lumber Liquidators may face liquidity concerns if the MDL settlement is "significant."

"[W]e believe it is in the best interest of MDL plaintiffs to settle at a level that would not push the company into bankruptcy (thereby jeopardizing receipt of settlement proceeds), we believe that a significant settlement could sharply raise liquidity concerns, making LL shares high-risk," Basham continued.

Expectations, Estimates And Rating

The analyst now expects EPS for 2016 at ($1.74) versus prior estimate of ($1.30), while consensus estimate calls for ($1.73). Basham, who has a Neutral rating on the stock, also slashed his 2016 revenue forecast to $946 million from $965 million (consensus: $941 million).

For 2017, the analyst sees EPS of $0.66, with Street estimate being $0.04. But, he trimmed the revenue expectations to $994 million from $1 billion, while consensus estimate calls for $972 million.

"Earnings power visibility is limited, but we estimate $1.00 EPS if trends normalize, with upside to $1.50+. Our $1.00 estimate is based on our 2018 sales estimate of $1.04 billion and estimated normalized 4 percent operating margins," Basham added.

Shares of Lumber Liquidators fell 11.07 percent on Wednesday to close the session at $15.10.

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