Lumber Liquidators Holdings Inc. was cut to equal weight from overweight by Morgan Stanley analyst Simeon Gutman on Monday after a "60 Minutes" report alleged that the U.S. hardwood flooring retailer sells Chinese-made laminate flooring that has a much higher-than-accepted level of formaldehyde, a chemical known to cause cancer. The analyst removed his price target on the stock, citing "heightened uncertainty." Gutman said the quality allegations are two to three years old and he had assumed the company had made moves to resolve them. "We are concerned that quality issue may still exist" after watching "60 Minutes." Still, the analyst said the show is "clearly being influenced by" investors who short the stock. He said the show also didn't mention how it tested the product. "The stock fallout has already likely outpaced any sales fallout," Gutman said. Separately, Janney Capital analyst David Strasser said he expects the company's near-term sales will be hurt by the allegations, but said the hit to its gross margin will be "modest." Strasser estimated laminates are about 20% of the company's total business, with Chinese-made laminate half of that, or about $105 million. Lumber Liquidators stock was halted for trading. It tumbled 23% before the opening.
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