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Bull of the Day: Lumber Liquidators (LL)

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If you're looking for a way to play the housing recovery without owning a homebuilder, look no further than Lumber Liquidators Holdings Inc. (LL - Free Report) . The largest retailer of hardwood flooring is expected to grow earnings by the double digits in both 2013 and 2014. Lumber Liquidators is a Zacks Rank #1 (Strong Buy).

While investors shunned Lumber Liquidators during the Great Recession as housing struggled, the company continued to grow. In November 2009, the company had 180 stores. As of the end of Dec 2012, it had 288 locations. It now carries over 340 varieties of flooring.

Lumber Liquidators' earnings have been telegraphing the turnaround in the housing market for the past year. It has posted big surprises on the Zacks Consensus each of the last four quarters. The surprises have averaged 30%.

Beat By 19.1% In Q4

On Feb 20, it reported fourth quarter results which saw net sales jump 20.8% to a record $210.7 million. Comparable store net sales climbed 13.2%. Average sale price for comparable store sales rose 3.9%.

A key metric for retailers is expanding gross margins. Lumber Liquidators' gross margin jumped to 39.1% from 35.5% in the year ago fourth quarter. The increase was due to lower product costs due to sourcing initiatives and sales mix, in addition to lower net transportation costs and a reduction in the estimated shrink of merchandise inventories.

Bullish On 2013

The good times are expected to continue in 2013 as consumers remodel homes and new home construction picks up. Lumber Liquidators gave guidance of comparable store net sales rising in the mid-single digits.

It will open between 25 and 35 new stores.

Earnings are expected to be in the range of $1.90 and $2.15. The analysts were more conservative about 2013 before the earnings report as the Zacks Consensus was at just $2.00. 6 estimates have risen since the report, pushing the Zacks Consensus up to $2.15 which is the high end of the company's range.

Earnings are expected to grow 28.1% in 2013 and another 21% in 2014.

Shares Have Tripled

We're not the only ones realizing that Lumber Liquidators should do well as housing recovers. The shares have tripled off their 2011 lows.

However, that doesn't mean it's the end of the story. Yes, shares aren't cheap with a forward P/E of 26.8. But that is under the company's 10-year average P/E of 27.1x. You're obviously paying for the growth story here.

Lumber Liquidators also has a solid return on equity (ROE) of 21.3% which is well above the average of its peers at 13.3%.

For investors looking for a niche play in the housing recovery, Lumber Liquidators should be at the top of the list.

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Tracey Ryniec is the Value Stock Strategist for She is also the Editor of the Turnaround Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

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