GOLDMAN: 3 reasons we still believe in Lumber Liquidators

Goldman Sachs maintained its “Buy” rating on Lumber Liquidators in a note Thursday.

The laminate flooring maker apparently violates several health and safety regulations in its Chinese factories, according to a “60 Minutes” report aired on Sunday. The stock fell as much as 25% in trading on Monday.

Although Goldman cut it’s price target to $US40 from $US60, the firm is still keeping a “Buy” rating on the stock for these three reasons:

  1. Investors’ reaction was drastic — shares are down almost 50% from last week’s earnings release, when the company announced that the “60 Minutes” would air it “in an unfavorable light.” The risk/reward on the stock looks positive.
  2. Lumber Liquidators is holding a call with investors on March 12, and by then they will have had enough time to prepare answers to any concerns. In a response Monday, the company said it is compliant with regulations set by the California Air Resources Board (“CARB”) that it’s said to have violated. And Morgan Stanley has seen no proof that the flooring, which reportedly contain dangerous levels of formaldehyde, is harmful to consumers.
  3. Even if there’s a risk to consumers, “60 Minutes” detailed violations in Chinese-made products, which are a small portion.

Goldman, however, cut its 2015 earnings per share forecast to $US2.18 from $US2.50.

Lumber Liquidators shares were slightly higher on Thursday morning.

On Wednesday, shares of the company fell after Florida senator Bill Nelson called on government agencies to investigate the company’s flooring imported from China. Shares of the company crashed on Monday following the initial “60 Minutes” report.

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