Morgan Stanley: '60 Minutes' Lumber Liquidators Story Suggested 'Short Sellers Have A Stake'

In a report published Monday, Morgan Stanley analyst Simeon Gutman argued that the recent "60 Minutes" episode profiling Lumber Liquidators Holdings Inc (NYSE: LL) showed that short sellers "have a stake in how this situation unfolds."

Gutman noted that "60 Minutes" raised concerns that those involved in showcasing the allegations against Lumber Liquidators have connections to investors that are short the stock.

"To the extent consumers appreciate this, and see through the situation, it could influence how they perceive the allegations," Gutman wrote. "In other words, it could minimize any fallout."

However, Gutman did add that regardless of the driving effort, the issues over product quality and safety are now front and clear for consumers and the question is what degree of fallout may occur.

Related Link: 8 Damning Quotes From The 60 Minutes Exposé On Lumber Liquidators

Gutman suggested that if there is no fallout, the market suggested that shares are worth around $70 per share, the price at which shares traded at prior to management disclosing it will be featured in the "60 Minutes" effort. On the other hand, the analyst suggested that the market may be pricing around a 25 percent plus impact to the business based on the decline in shares during Monday's pre-market trading.

"Our instinct is that the stock fallout has already likely outpaced any sales fallout," Gutman wrote. "However, we just don't have precedent to look back to and predict what the fallout may be. Furthermore, if product quality issues still exist, it would be hard to get comfortable with the business' fundamentals."

Shares were downgraded to Equal-weight from Overweight and removing an $85 price target on "heightened uncertainty."