Wedbush Upgrades Lumber Liquidators (LL) to Outperform

Wedbush upgraded Lumber Liquidators (NYSE: LL) from Neutral to Outperform with a price target of $73.00 (from $62.00). Analyst Seth Basham thinks supply chain issues are receding and competitive pressures are behind the company.

"While we may be early as 2H14 results are likely to be choppy, we recast our analysis and now see significant gross margin and sales upside in 2015 and recommend investors take advantage of the stock’s summer swoon to purchase what we view one of the best growth concepts in hardlines retail," said Basham.

"Based on our checks, we believe out-of-stocks driven by shipping delays associated with new vendor compliance procedures and vendor transitions are fading and the company should be fully back in stock this fall. As importantly, we see no material cost increases to LL from these new compliance procedures and we believe the concerns over wood source origin from specific Chinese vendors eventually will be resolved without substantial additional quality control changes that could impact profitability. Improved in-stocks should add at least 600 bps to comp trends," he continued.

"Key macro leading drivers such as existing home sales are improving along with the weather, while competitive pressures from the likes of HD are unlikely to get significantly worse in 2015, providing sales support. We believe 2Q marked the bottom for LL’s underperformance vs. the industry (~1400 bps) and expect LL comp growth near industry trend levels in 2015."

For an analyst ratings summary and ratings history on Lumber Liquidators click here. For more ratings news on Lumber Liquidators click here.

Shares of Lumber Liquidators closed at $55.33 yesterday.

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