Lumber Liquidators (LL) Stock Gaining on Takeover Speculation

NEW YORK (TheStreet) -- Shares of Lumber Liquidators (LL) jumped on heavy volume on Friday and are higher by 3.49% to $21.36 in mid-afternoon trading, following unfounded reports that the battered hardwood flooring retailer is the target of a takeover by a large home improvement chain.

One of the founders of the hedge fund Kase Capital Management, Whitney Tilson, said he heard a rumor that Home Depot (HD) could look to buy Lumber Liquidators for $35 to $40 per share, MarketWatch reports.

Tilson, a known short seller of Lumber Liquidators, commented on the rumor:

"This is the dumbest rumor ever. Nobody is going to buy Lumber Liquidators, nor will any bank finance an acquisition or management buyout (even in this debt-markets-wide-open environment), because nobody--not me, not the company, not the lawyers suing Lumber Liquidators--has any idea what the liabilities are--but they are potentially large and open-ended,' Tilson said in a statement to MarketWatch.

Lumber Liquidators has been struggling since a March report from CBS Corp.'s (CBS) "60 Minutes" accused the company of selling customers hardwood flooring materials made in China that held a higher than legally allowed amount of the carcinogenic chemical formaldehyde.

Since the "60 Minutes" report aired the company has stood behind the safety of its products. However, Lumber Liquidators is facing an onslaught of lawsuits and the company's CEO stepped down in May.

So far today, 4.54 million shares of Lumber Liquidators have exchanged hands as compared to its average daily volume of 3.59 million shares.

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 9.1%. 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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