Wedbush Says Lumber Liquidators' CPSC Ruling 'Not Surprising,' But An Incremental Positive

On June 16, the Consumer Products Safety Commission (CPSC) released its findings related to the investigation of Lumber Liquidators Holdings Inc (NYSE: LL)'s Chinese laminate flooring.

Wedbush’s Seth Basham maintains a Neutral rating on the company, with a price target of $13.

Positive Ruling

Basham mentioned the CPSC concluded the company “need not recall the products as they tested below remediation guideline levels.”

The analyst believes these findings do not come as a surprise, given that they are based largely on the results of product testing completed and released by the CDC earlier in 2016.

However, Basham also cautioned that although the removal of this overhand was a positive, “and the business is showing signs of underlying improvement, significant risk still exists in outstanding litigation, most importantly the Multi District Litigation (MDL) class action products liability lawsuit.”

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The CPSC also announced Lumber Liquidators had agreed not to resume the sales of laminate wood flooring that had previously been imported from China, while also agreeing to continue conducting a comprehensive testing program, as part of its recall program.

The MDL Lawsuit

Basham believes that of all the legal matters that are still outstanding, the MDL class action liability lawsuit was the largest potential risk for Lumber Liquidators.

“One key issue, in our view, is whether LL’s labeling of products as “CARB Phase 2 Compliant” when they may not have been grounds for a claim. If a claim is awarded, it could be significant depending on how it is constructed and how the case is settled,” the analyst explained.