Piper Jaffray Says Lumber Liquidators Has Calmed Investors' Fears

In a report published Thursday evening, Piper Jaffray analyst Peter Keith commented that Lumber Liquidators Holdings Inc (NYSE: LL) business update "went well" and calmed fears on the sourcing and safety of its products.

"There was a helpful focus on deconstructive testing and why it can have wide variability in results," Keith wrote. "Additionally, Lumber Liquidators made strong statements about both CARB's and the EPA's view on deconstructive testing, and it provided substantial detail on its 3 level testing to ensure its products are safe and compliant."

Keith added that following the presentation he believes the liability on the company's business is "minimal" and the greater concern is the negative impact on both sales during the spring remodel season. In addition, the analyst cited a change to gross margins over time if consumer backlash forces the company and the industry as a whole to shift away from Chinese-based supplies.

Related Link: Whitney Tilson Gives New Response To Lumber Liquidators, Says Company Has 'Campaign Of Distraction And Deception'

Keith also stated that the drop-off in sales "not as bad as we expected" as the company's reported drop in comp trend of negative 12.7 percent can be "distorted" as open orders are still up 12.6 percent, which is probably 7.5 percent on a comp basis. The analyst initially estimated that comps would be running at a minus 20 percent rate since the original "60 Minutes" broadcast.

Shares are Neutral rated with a $40 price target based on 18x 2016 earnings per share estimate of $2.20.