Lumber Liquidators continues to be at the center of controversy as debate about the formaldehyde content of its flooring products rages on. The most recent allegations came from short-seller Whitney Tilson and a report by 60 Minutes.
That report claimed the company’s Chinese-made flooring was not in compliance with the stringent regulations set forth by the California Air Resource Board (CARB) even though the company claimed that it was. However, Lumber Liquidators has maintained that the testing method used was not the correct one.
Raymond James tests Lumber Liquidators’ products
Now analysts at Raymond James have published the results of their own series of tests on Lumber Liquidators’ flooring. The firm ordered tests on only two of the company’s flooring products, purchasing samples from a store in Florida.
Michael Mauboussin: Challenges and Opportunities in Active Management And Using BAIT #MICUS
Michael Mauboussin's notes from his presentation at the 2020 Morningstar Investment Conference, held on September 16th and 17th. Q2 2020 hedge fund letters, conferences and more Michael Mauboussin: Challenges and Opportunities in Active Management Michael Mauboussin is Head of Consilient Research at Counterpoint Global in New York. Previously, he was Director of Research BlueMountain Capital, Read More
Two different types of tests were done on the flooring. One was the deconstructive method, which is the one used by 60 Minutes that Lumber Liquidators maintains is the wrong method to use. The other testing method was what’s called a “Small Chamber test,” which involves putting the finished flooring in a chamber that has controlled humidity and temperature levels.
The difference between the tests
The Raymond James team said the Small Chamber test brought back results that were consistent with what Lumber Liquidators said in its business update after the first 60 Minutes report. Management said the finished products, which include finish and laminate, sealed in most of the missions from the formaldehyde content. Further, they said the deconstructed wood cores would probably exceed the limits for formaldehyde content set for the by CARB.
Unsurprisingly, the deconstructive test methods returned results that were consistent with what 60 Minutes found in its tests. Those results did exceed CARB’s limits on formaldehyde emissions, as management said they probably would.
Lumber Liquidators upgraded
The Raymond James analysts upgraded Lumber Liquidators as a result of the findings of their tests. They now rate the flooring retailer as Outperform from their previous rating of Market Perform. Their price target for the company’s stock is $40 per share.
The Consumer Product Safety Commission is currently investigating the claims about the formaldehyde content in Lumber Liquidators’ flooring. The agency has taken in samples for testing and said it will be months before they have the results of those tests.
The Raymond James team thinks Lumber Liquidators’ odds of a positive result from the CPSC’s tests are excellent. As of this writing, shares of Lumber Liquidators were up 5.24% to $34.94 per share and still rising, while year to date, the stock is down by approximately 50%.