Green Light: Lumber Liquidators Holdings Inc (NYSE:LL)
Today, the CDC disclosed its opinion about the flooring sold by Lumber Liquidators Holdings Inc (NYSE:LL) and made a decision that is extremely important to investors. Last year we knew that there were three major concerns for investors in Lumber Liquidators: the harvesting of illegal wood, legal matters pertaining to California Carb2 emission standards violations, and a potential recall by the CPSC.
Today the CDC discussed potential hazards that could surface from hardwood flooring sold by Lumber Liquidators, but that does not support a recall by the CPSC. This was a massive win for Lumber Liquidators.
We already know what the fine associated with the illegal harvesting will be, we can roughly quantify the maximum exposure Lumber Liquidators might have concerning the legal issues too, $50M, but the monkey on the back of Lumber Liquidators was the risk of a recall.
In our opinion, Lumber Liquidators was capable of handling everything else except a recall. If the CPSC recalled Lumber Liquidators hardwood flooring it could cause the company to go bankrupt.
However, the CPSC is not likely to issue a recall based on the CDC disclosures today (no cancer risk + 2 years and then emissions are normal). Lumber Liquidators has the money to pay fines and cover legal ramifications already, and we believe the stock is an exceptional value now that major issues are behind it. We do not mean to discount the nature of the legal ramifications, because those are serious, but Lumber Liquidators already has the cash to cover those expenses given our estimates.
In fact, because formaldehyde emissions dissipate over time anyway flooring that was purchased under the guise of California Carb2 emission standards, but did not live up to those standards, is no longer an emissions risk. We believe that injury will be almost impossible to prove, but we do believe some retribution will be paid to customers in California who bought flooring from Lumber Liquidators with the understanding that it was compliant with California's emission standards.
California was the only state to have the standards, and we believe it will be very difficult for anyone out of the state of California to realize monetary damages because, at this point, flooring that was purchased already, which was not compliant at the time, is of equal value to flooring that was compliant given the dilution of emission risks that exist over time.
It is our understanding that there are no current risks with flooring purchased from Lumber Liquidators from years ago or recently, but there were certain emission risks initially with flooring that was purchased years ago. The flooring that had those risks years ago no longer have those risks and they are therefore of equivalent current value to flooring that met Carb2 compliance guidelines.
In summary, we believe that Lumber Liquidators is out of the woods. The information provided by the CDC provides no grounds upon which to issue a recall.
Stock traders daily has strong buy ratings on Lumber Liquidators.
Given the information from the CDC today we would not be surprised if Lumber Liquidators accelerated to near $20.00 per share in the near term. This was a huge win.