Loop Capital Turns Bullish On Lumber Liquidators After Visit To HQ

After three years of operating losses, Lumber Liquidators Holdings Inc LL is set to return to profitability, which gives investors a good opportunity to buy a stock that is "too cheap," according to Loop Capital Markets.

The Analyst

Analyst Laura Champine upgraded Lumber Liquidators from Hold to Buy with a price target lifted from $22 to $30.

The Thesis

Lumber Liquidators' streak of posting positive same-store sales in earnings reports now stands at six, and this trend will likely continue, Champine said in the Friday upgrade note. Champine wrote the note after visiting the company's Toano, Virginia headquarters. 

The positive outlook is based on Lumber Liquidators conveying two key messages, the analyst said: 

  • In-house installation is showing "improved attachment."
  • Lumber Liquidators' rivals have much less exposure to wood and wood-look products as a percentage of their sales mix.

Looking forward to the full year, the analyst said she has "more confidence" that the company's savings from sourcing its products from cheaper sources will flow through to the gross margin line.

Lumber Liquidators' SG&A expense rate is likely to drop from 34.8 percent to 34.2 percent as digital investments appear to be "less of a drag" than previously expected, Champine said. 

Lumber Liquidators could earn 76 cents per share in fiscal 2018 after losing $1.33 per share in 2017, and a same-store sales growth rate of 4 percent or more on top of 5-percent growth in 2017 "seems reasonable," according to Loop Capital Markets' projections. These expectations are based on the ongoing strength in the housing market and homeowner demand to remodel and modernize homes, the analyst said. 

The lumber retailer's stock is trading at just 0.6x the analyst's 2018 sales estimate, which makes it "too cheap for a turnaround story that is returning to profitability," Champine said. 

Price Action

Shares of Lumber Liquidators were trading higher by nearly 3 percent after the open Friday. 

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