Lumber Liquidators' Stock Rallies After Analyst Upgrade

Shares of Lumber Liquidators rallied 2.2% in premarket trade Monday, after Raymond James upgraded the lumber retailer on the belief that the headwinds related to concerns over Chinese-made laminated flooring will dissipate and that sales and earnings trends will continue to improve. Analyst Budd Bugatch raised his rating to outperform from market perform and set a $40 stock price target, which is 20% above Thursday's closing price of $33.20. The stock has tumbled 50% year to date, hurt by a "60 Minutes" report in early March about how its Chinese-sourced flooring contained high-levels of formaldehyde, which is a cancer-causing agent. Bugatch said a Raymond James commissioned tests on two Chinese-made laminated wood floor products showed that formaldehyde emissions were significantly sealed in. In addition, Bugatch believes the fact that the Consumer Product Safety Commission will test the Chinese-made laminates as finished goods increases the odds of a favorable result. And the company's latest sales update was better-than-expected. "Though the near term will remain challenging for the company by both the loss of reputation and by the various consumer and shareholder derivative lawsuits it will have to defend, we believe the trend of sales, earnings and share value will track higher over the longer term," Bugatch wrote in a note to clients.

Copyright © 2015 MarketWatch, Inc.