Lumber Liquidators (LL) Stock Falling on Reports Insurers Abandoning Retailer Amid Scandal

NEW YORK (TheStreet) -- Shares of Lumber Liquidators (LL) are down by 2.85% to $27.26 at the start of trading on Tuesday morning, following reports suggesting the hardwood floor retailer's insurance carriers are refusing to defend the company in class action suits brought on by angry customers, the New York Post said, adding that as a result Lumber Liquidators has filed a suit of its own against its insurers.

Lumber Liquidators has been fighting against accusations made in a report from CBS' "60 Minutes" claiming the laminated flooring the company makes out of China contains dangerous levels of the carcinogenic chemical formaldehyde.

Following the report Lumber Liquidators stood behind the safety of its products, however, last week the company said it will no longer sell the flooring.

The company could end up spending tens of millions of dollars if forced to defend and payout on claims made against it by consumers, the Post noted.

"This is a contract dispute ... over how some of the terms should be construed or defined. The insurers made a promise to defend Lumber Liquidators and they are now attempting to break that promise," the company said in a statement to the Post.

TheStreet's Jim Cramer, Portfolio Manager of the Action Alerts PLUS Charitable Trust Portfolio says, "I don't think people should speculate on this one as it is just too darned uncertain." 

Separately, TheStreet Ratings team rates LUMBER LIQUIDATORS HLDGS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate LUMBER LIQUIDATORS HLDGS INC (LL) a HOLD. The primary factors that have impacted our rating are mixed-some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 12.1%. Since the same quarter one year prior, revenues slightly increased by 5.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • LL's debt-to-equity ratio is very low at 0.06 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.31 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. In comparison to the other companies in the Specialty Retail industry and the overall market, LUMBER LIQUIDATORS HLDGS INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • Net operating cash flow has decreased to $13.16 million or 40.98% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • You can view the full analysis from the report here: LL Ratings Report

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