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Lumber Liquidators Holdings

LL

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Lumber Liquidators Holdings Inc. (LL - Snapshot Report) recently reported its third straight quarter with a positive earnings surprise, leading this retailer of hardwood flooring to boost its outlook for the full year. All 11 estimates for 2012 and 2013 have trended higher over the last 30 days.

These strong results pushed this Zacks #1 Rank (Strong Buy) to a 52-week high of $58.80 on October 24. Shares have soared 233.9% year to date.

Fabulous Quarter, Upbeat Guidance

On October 24, Lumber Liquidators reported third quarter earnings of 46 cents per share, topping the Zacks Consensus Estimate by 35.3% and increasing substantially by 91.7% year over year. The improvement got a boost from strategic initiatives by management, including efficient merchandise planning and optimizing the supply chain.

Net sales jumped 18.8% over the prior-year quarter to $204.3 million, surpassing the Zacks Consensus Estimate of $189 million. Comparable-store sales grew 12% thanks to an 11.7% rise in the number of customers. Gross margin expanded 250 basis points (bps) to 38.1%, benefiting from lower product costs, partially mitigated by a rise in transportation expenses. Operating margin grew 380 bps to 10.2%.

Management raised its full year sales guidance to between $791 million and $799 million from the earlier outlook of $750 million to $775 million. Comparable-store sales are now expected to rise in the mid to high-single digits. Earnings are projected between $1.53 and $1.59 per share, up from the previous range of $1.30 to $1.42. The company expects to open 23 to 25 new stores over the course of the year.

Solid Earnings Estimate Revisions

In the past 30 days, the Zacks Consensus Estimate for 2012 rose 10.3% to $1.60 per share after all 11 estimates were revised higher. This outlook implies year-over-year growth of 72.5%.

All 11 estimates were revised upward for 2013 as well, sending the Zacks Consensus Estimate upward by 14.2% to $2.01 per share. This suggests a year-over-year increase of 25.3%.

Reasonable Valuation

Lumber Liquidators currently trades at a forward P/E of 36.17x, reflecting a 45.4% premium to the peer group average of 24.88x. Also, on a price-to-book basis, shares trade at 7.05x, a substantial premium to the peer group average of 2.54x. Given the company’s compelling fundamentals, the premium valuation is justified and well supported by its long-term estimated EPS growth rate of 17.5%, which is in line with the peer group average.

With respect to return on equity (ROE), the stock looks attractive. It has a trailing 12-month ROE of 19.3%, which is above its peer group average of 12.5%. This implies that the company reinvests its earnings more efficiently than its peer group.

Chart Echoing Strength

Shares of Lumber Liquidators are now hovering close to its 52-week high, and has been consistently trading above its 200-day moving average since January 17, 2012. It has also remained above the 50-day moving average since February 23, 2012.

Volume is fairly strong, averaging roughly 612K daily. The year-to-date return for the stock is 233.9% compared with the S&P 500’s return of 9.2%.

Founded in 1994 and headquartered in Toano, Virginia, Lumber Liquidators Holdings operates as a multi-channel specialty retailer of hardwood flooring and hardwood flooring enhancements and accessories. The company operated 275 stores across 46 states in the U.S. and 9 outlets in Canada, as of September 30, 2012. Lumber Liquidators, which primarily competes with Lowe's Companies Inc. (LOW) and The Home Depot Inc. (HD), has a current market cap of $1.58 billion.


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