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Tags: Lumber Liquidators | LL | stock price | investing

After 6-Month Pullback, Lumber Liquidators Seems Poised to Move Higher

By    |   Friday, 09 May 2014 06:41 AM EDT

Lumber Liquidators (LL) pulled back sharply over the past six months in response to a temporary slowdown in the U.S. economy and what appears to be a transitory decline in the company’s profits.

However, the Stoughton, Massachusetts-based company’s stock appears to be trading now at a compelling price in terms of the favorable outlook for the U.S. economy and the company’s revenues and earnings over the next few years.

For example, the most-recent readings on numerous economic indicators suggest that economic activity in the U.S. housing market will improve considerably and that the pace of economic growth for the United States will increase during the second half of this year.

Editor's Note: Secret Wall Street Calendar Uses Strange ‘Crash Alert System,’ Gets 18.79% Annual Returns

In addition, recent statistics from the University of Michigan and the U.S. Department of Labor indicate that American households became much more optimistic over the past few months about the future direction of the economy.

Specifically, the University of Michigan announced on April 25 that its Consumer Expectations Index rose during April to the highest level since July 2013, and the Commerce Department announced on May 1 that U.S. households, in the aggregate, increased their spending at an accelerated pace during each of the past three months.

Separately, the Federal Reserve announced on May 2 that personal loans rose for the third consecutive month during March, which also indicates that U.S. households have become more confident in the future direction of the economy.

In light of the fact that the U.S. employment situation improved substantially over the past few months, and that household financial obligations, as a percentage of the after-tax incomes of U.S. households, has fallen to the lowest level since 1981, I expect Americans to continue to increase their spending on various types of goods and services during the months ahead.

Considering that approximately 13 percent of mortgage debtors are currently under water in their mortgages – the value of the homes in which they live are less than the amount of money that they owe on their mortgages – I expect a large percentage of those mortgage debtors to spend money over the next couple of years on renovating and remodeling their homes instead of buying a new home.

Susan Wachter, a professor of real estate and finance at the University of Pennsylvania’s Wharton School of Business and Stephen Melman, the National Association of Home Builders’ director of economic services, seem to agree with my expectations.

“The new normal is remodeling as an alternative to buying and trading up,” Wachter said.

Melman said his research indicates that household spending on home renovations will rise by 8 percent this year, after rising by 3.1 percent last year.

Separately, a recent survey done by American Express indicates that almost 75 percent of U.S. homeowners plan to make some type of home improvement this year.

The factors and developments mentioned above bode very well for Lumber Liquidators, the largest specialty retailer of hardwood flooring in North America.

Lumber Liquidators
sells an extensive selection of premium hardwood flooring products directly to homeowners and to contractors on behalf of homeowners under multiple proprietary brands at low prices that are designed to appeal to a diverse customer base.

As of March 31, the company operated 322 stores in 46 states throughout the U.S. and 9 stores in Ontario, Canada.

For the year ended Dec. 31, 2013, Lumber Liquidators increased its net income by 64 percent on a 23 percent increase in its revenues. As a result of the factors and developments mentioned above and some strategic initiatives that Lumber Liquidators announced recently, I expect the company to continue to increase its revenues and earnings at a fast pace over the next few years.

In regard to the announcements mentioned above, Lumber Liquidators announced on April 30 that it plans to open 35 to 40 new stores in a larger showroom format that the company implemented during 2013, and that it plans to remodel 25 to 30 of its existing stores using that same format.

The company announced on that same day that it also plans to consolidate and expand its distribution facilities during 2014. Specifically, the company reported that it is constructing a 1 million square foot distribution center on 110 acres of land that it owns in central Virginia, with a targeted opening date in the fourth quarter of this year.

Although Lumber Liquidators expects its operating expenses to increase as a result of the investment mentioned above, the company expects its revenues to increase by a greater degree than those expenses.

Therefore, the company expects its profit margins to also increase this year. That would be a very positive development considering that Lumber Liquidators already increased its net profit margin to 7.7 percent during 2013, from 6.8 percent in 2012 and 3.9 percent during 2011.

In regard to Lumber Liquidators’ projected income, the company expects its earnings per diluted share to rise by approximately 23.8 percent to a range of $3.25-$3.60 for the year ending Dec. 31.

With my research indicating that Lumber Liquidators will continue to increase its earnings per share at a rate of at least 20 percent during 2015 and 2016, and its stock closing at forward price-to-earnings multiple of only 24 on May 8, LL appears to be selling currently at a reasonable price.

Therefore, I would encourage investors and stock market speculators to allocate a portion of their financial market assets to this Lumber Liquidators’ stock at prices up to $85.  The stock closed at $82.08 Thursday in NYSE trading.

Editor's Note: Secret Wall Street Calendar Uses Strange ‘Crash Alert System,’ Gets 18.79% Annual Returns

David N. Frazier has an extensive background in the investment securities industry and has invested in the financial markets for more than 25 years.

In addition to working as a business analyst, merchant banking analyst and equity research analyst, he’s held positions in sales and marketing at institutional investment firms, including William O’Neil & Co., TDAmeritrade, and Merrill Lynch.

David now serves as the president and chief market strategist of Frazier & Mayer Research, LLC (dba www.TheMarketMonk.com), an independent investment research firm that provides research and analytical services to hedge funds, investment advisory firms, and other investment newsletters.

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Lumber Liquidators (LL) pulled back sharply over the past six months in response to a temporary slowdown in the U.S. economy and what appears to be a transitory decline in the company’s profits.
Lumber Liquidators, LL, stock price, investing
Friday, 09 May 2014 06:41 AM
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