Lumber Liquidators: ‘Stick’ with this Speculative Play Option
Lumber Liquidators Holdings Inc (NYSE:LL) shares are crashing 14% after the flooring retailer posted weaker-than-anticipated fourth quarter revenue. True, the company’s sales surged 6.1% year-over-year; but considering the Street was looking for roughly $264 million in net sales, LL simply came up short with $260 million.
Oppenheimer analyst Brian Nagel continues to back the company for the long-term, reiterating an Outperform rating on LL stock with a $43 price target, which implies a 102% upside from current levels. (To watch Nagel’s track record, click here)
Calling LL’s print “largely solid,” the company posted stronger adjusted EPS of $0.14 for the quarter considering the fourth quarter the year before had been an adjusted loss of ($0.19), outclassing the Street’s $0.09 projection. “Somewhat lighter top-line trends were mainly offset by continued solid margin gains and tightly managed expense controls,” notes the analyst. Gross margins “continue to grind higher,” continues Nagel, with LL hitting 35.4% from last year’s fourth quarter result of 32.9%. The analyst attributes this strength to “a favorable mix shift to vinyl and engineered products, lower transportation costs, and better sourcing/ pricing across a broad array of categories.”
“Overall, as we examine closely the Q4 (Dec.) results and initial 2018 and longer-term financial guidance that Outperform-rated Lumber Liquidators (LL) reported today, we are encouraged the fundamental recovery at the once struggling chain continues to take shape. 2017 was clearly a year of structural fixes for LL. Data suggest to us that LL is now in a position to much more aggressively rebuild its brand and reconnect with consumers. Competition within the flooring category has intensified across retail. That said, demand tailwinds remain in place and significant profit and sales ‘slack’ within the LL model still exists. We stick with LL as a longer-term, value-oriented, speculative turnaround play,” Nagel contends.
TipRanks highlights a Wall Street that is mostly sidelined on this consumer goods player. Out of 8 analysts polled in the last 12 months, a majority of 7 are playing it safe with a Hold rating on LL stock while only 1 is willing to take the gamble with a Buy. With a return potential of nearly 48%, the consensus average price target stands at $31.42.
Fitbit Keeps Oppenheimer’s Optimism Despite 4Q Flop
Fitbit shares are falling almost 13% after what even one bull admits is yet “another uninteresting quarter.” Considering the company launched three years ago at $20 per share, today’s current share price of $4.86 is a far fall for a company that used to reign in the wearables arena.
Oppenheimer analyst Andrew Uerkwitz blames the company’s first smartwatch, the Ionic, for falling under the FIT management team’s hopes- likely due to a narrow app atmosphere that did not help the Ionic.
For the fourth quarter, FIT hit the bottom of its guidance well with $570.8 million in revenue and a loss of ($0.02) in non-GAAP EPS- even underperforming slightly the analyst’s forecasts calling for $584 million in revenue and a profit of $0.01 in non-GAAP EPS. Units slipped 17% year-over-year during the holiday season, falling 31% for 2017. On a positive note, however, the analyst draws attention to device average selling prices (ASP) which rose 9% last year. “Services remains immaterial,” writes Uerkwitz.
For the first quarter, FIT has guided revenues to $240 to $255 million and non-GAAP EPS to a range between ($0.21) and ($0.18), along with negative free cash flow of $25 million. For 2018, FIT has set revenue around $1.5 billion, calling for break-even free cash flow, operating expenses lessened by 7%, and “pressured” gross margins. Accordingly, the analyst is applying a bit further of a “bearish” weight on his expectations, anticipat8ing the forthcoming analyst day will offer some “more color.”
In a nutshell, “FIT’s first foray in the smartwatch space —the Ionic—underwhelmed management’s expectations (we believe a limited app environment played a role). Trackers remained the dominant revenue driver with the Charge 2 (launched in Sept 2016) the best seller. Overall, the company sold 5.4M wearable devices in the quarter and 15.3M for the year. On the positive side, Fitbit grew its active users by 9% in the year and is now 25.4M. And the brand remains strong and users remain hopeful in improving health as 37% of activations were repeat customers and nearly half of these were inactive the period prior. With reactivations, cash being essentially flat, and recent digital health acquisitions, we remain ever the optimists,” underscores the analyst.
Here’s why Uerkwitz is choosing to stay the “hopeful course:” the analyst boils down his bullish case to two key “pillars” at hand: “1) FIT transitioning to a digital health company (has the agnostic hardware, active users, data, platform and budding health relationships, just needs the revenue model); and 2) putrid valuation (2x cash or <1x revenue). We believe engagement metrics and free cash flow should be the new quantitative markers.”
As such, the analyst reiterates an Outperform rating on FIT stock with an $8 price target, which implies a 65% upside from current levels. (To watch Uerkwitz’s track record, click here)
TipRanks showcases cautiously optimistic sentiment circling the fitness tracking giant. Out of 6 analysts polled in the last 3 months, 3 are bullish on Fitbit stock, 2 remain sidelined, while 1 is bearish on the stock. However, it appears analysts are fare more optimistic than cautious, considering the 12-month average price target of $7.60 reflects healthy upside potential of 57% from where the stock is currently trading.