Oppenheimer Initiates Lumber Liquidators: 'Worst Not Yet Over?'

In a report published Thursday, Oppenheimer analysts initiated coverage of Lumber Liquidators Holdings, Inc. LL with a Perform rating. Although consumer confidence in the company is currently low, the analysts believe that there are long term opportunities for growth. "In the near term, we think Street EPS forecasts remain too optimistic and the valuation of shares has yet to reach level characteristic of investor capitulation. We could see LL shares trading down to the low- to mid-20s before setting up for a prolonged move higher," the analysts said. The stock has declined 66 percent over the last 12 months, significantly underperforming the S&P500 and Oppenheimer's Hardlines coverage universe. In addition, the analysts expect Lumber Liquidators to see a slow recovery in operating margins, with expectatiosn of a mere 5.2 percent growth in 2016. Profit levels are unlikely to touch the historic highs in the near future. According to the report by Oppenheimer, "Per our forecasts, free cash flow at LL in 2015 and 2016 is likely to turn negative. We expect the chain to dip into its new $100M asset-backed line of credit to support weaker profit growth."