Wedbush Previews Lumber Liquidators Earnings, Says 'If It's Only About Sales, It's a Buy'

In a report published Tuesday, Wedbush analyst Seth Basham reminded investors that Lumber Liquidators Holdings Inc LL is still very much "an extremely controversial stock" with "significant" regulatory and legal overhangs remaining.

Basham continued that short interest in the stock has returned back to near pre-"60 Minutes" peaks. The analyst did add that the backdrop does present a "very compelling" opportunity if investors can "get comfortable" with the regulatory and legal issues.

In fact, after an immediate hit following the "60 Minutes" report on March 1, gross new orders indicative of new demand were better than sales trends and open orders trended higher from March 10 to March 31.

Moreover, the analyst estimated that over half of March's 12.8 percent year over year net sales decline were due to 50 percent lower Chinese laminate sales, further proving that customers are abandoning Chinese laminate but not the company's other products – a fact that "bodes well" for April sales.

In fact, Basham stated that based on his checks, order trends continued to improve in April, with some store employees "surprisingly" commenting that trends are "back to normal" in recent weeks.

Related Link: The Research Note Pushing Lumber Liquidators Shares Up

"While we believe improving orders are the most important factor indicating customers are not avoiding Lumber Liquidators despite the 60 Minutes allegations and negative headlines, gauging reaction to potentially weak gross margin trends/guidance (if provided) is the primary factor keeping us sidelined for now," Basham wrote.

Basham concluded that Lumber Liquidators is expected to provide an update on open orders in April-to-date with its earnings print, which will be a "key positive indicator" if the company is equal to or higher than the March 31 balance of $46.4 million and if return and adjustment rates continue to moderate from 13 percent for late March.

Lumber Liquidators is scheduled to report its first quarter results Wednesday before market open. The Estimize consensus earnings per share estimate (based on eight estimates) is $0.18 while the Estimize consensus revenue estimate is $253.84 million. This compares to the Wall Street consensus earnings per share estimate of $0.16 on revenue of $260 million.

Shares remain Neutral rated with a $40 price target.