Source: Lumber Liquidators.
One of this year's biggest losers may finally be turning things around. Shares of Lumber Liquidators (LL +0.00%) are getting a break lately, with a positive analyst update this morning and an opportunistic hedge fund investment last week providing a long overdue bounce in the battered stock.
No one's loading up a glue gun with confetti to shoot up in the air just yet. The stock has still surrendered nearly 79% of its value in 2015 as of yesterday's close. However, Lumber Liquidators stock has moved 22% higher since hitting an all-time low of $11.62 earlier this month, and that was before opening nicely higher this morning following Cantor Fitzgerald's upgrade.
Analyst Laura Champine boosted her firm's rating on the stock -- from hold to buy -- and jacked up her price target from $15 to $18. Bringing on a new chief compliance and legal officer earlier this week should help it navigate through some thorny issues, and a recent tour with management reveals that gross margins may hold up better in the long-term than Cantor Fitzgerald had initially forecasted.
The upgrade follows a bounce last week after it was revealed that hedge fund Tiger Management initiated a position in the market laggard by purchasing 238,000 shares. The investment was actually made during the second quarter, but the SEC filing detailing the move was made public last week.
Even a reairing of February's 60 Minutes piece this past weekend -- the shot that sent Lumber Liquidators on a downward spiral after alleging that its China-sourced laminate flooring contained unacceptable and dangerous levels of formaldehyde -- hasn't been enough to reverse the reversal.
It's clear who got the better of the story since it first aired. Lumber Liquidators initially denied the severity of the allegations, but two months later it stopped selling Chinese laminates. The CEO, CFO, and CMO have all been replaced.
The recovery won't be easy. We're not just talking about the potential financial fallout of customers that may have purchased the flawed laminates in the past. Lumber Liquidators has its brand's reputation that it needs to restore to woo future customers. It's coming off of back-to-back quarterly losses, and that includes a sharp 10% year-over-year plunge in comps in its latest quarter, the first full quarter since the 60 Minutes piece ran.
Lumber Liquidators wasn't doing so hot in the quarters leading up to the scathing news piece, but now it's naturally in a much bigger hole. This doesn't mean that the hardwood flooring retailer is toast. Tiger Management wouldn't have made a sizable investment and Cantor Fitzgerald wouldn't be checking in with an upgrade -- after months of analyst downgrades weighing on the stock -- if they didn't think that the sell-off was overdone.
The stock is starting to bounce back. Now it's up to the freshly installed executives to make sure that the upticks are accompanied by store-level improvement.
