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Why This Analyst Is Sticking Out Her Neck On Lumber Liquidators

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Why This Analyst Is Sticking Out Her Neck On Lumber Liquidators

Shares of Lumber Liquidators Holdings Inc (NYSE: LL) fell 5 percent during Wednesday's trading session, but the stock reversed course and erased its decline in Thursday's pre-market session after Cantor Fitzgerald's Laura Champine upgraded the stock.

In a report published Thursday, Champine upgraded Lumber Liquidators to Buy from Hold with a price target raised to $18 from a previous $15 following a store tour with senior management. The analyst observed that some top-line momentum may be building from the recent tax holiday and the impact following the August 18 rerun episode of "60 Minutes" has been "limited."

Champine said Lumber Liquidators' move to narrow down its SKU (stock keeping unit) should help the company "return its focus on its core" which consists of "value-priced flooring." As such, the company will likely reduce its SKUs in ancillary categories (such as tools) while eliminated SKUs of the same product type in very similar colors. The analyst also speculated that an update of the floor set will create an "easier and more efficient" shopping experience.

Related Link: This Options Trader Is Buying Lumber Liquidators' 'Chart From Hell'

Champine concluded from her store tour that management's prior long-term gross margin guidance was "too conservative" which creates a "more appealing" risk to reward profile for the stock that is down nearly 80 percent year-to-date. The analyst noted that she had also taken a conservative view and estimated the company to expand its gross margins from 2016 to 2019 by only 150 basis points. The estimates were revised to a 240 basis point gross margin expansion by 2019 to 32.4 percent (which would still be 750 basis points below the 2014 rate).

Finally, Champine pointed out that Lumber Liquidators' most recent hire, Jill Witter, as Chief Compliance and Legal Officer brings a talented executive with three decades of relevant experience. In addition, the company "has filled a necessary executive void" as the company still has several regulatory and legal hurdles to clear.

Bottom line, the stock appears "washed out" following its year-to-date performance and appear "attractive" trading at only 0.3x 2016E EV/sales versus the retail group's average of 1.4x.

Image credit: Dwight Burdette, Wikimedia

Latest Ratings for LL

DateFirmActionFromTo
Aug 2020Morgan StanleyMaintainsUnderweight
Aug 2020WedbushMaintainsNeutral
Jun 2020Morgan StanleyMaintainsUnderweight

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View the Latest Analyst Ratings

 

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