Lumber Liquidators (LL, Financial), in which Whitney Tilson (Trades, Portfolio)'s hedge fund Kase Capital has a short position, rose over 10% early this morning. The key reason behind this uptick is a bullish report by famed short seller Andrew Left of Citron Research. He believes that fears surrounding potential unlimited liability for Lumber Liquidators to replace its laminate flooring is potentially overblown. Here are relevant excerpts from his report.
From an investor’s perspective, Lumber Liquidators appears to be caught in an avalanche of unlimited contingent liability; from a consumer’s perspective, maybe customers should consider ripping out their floors bought from Lumber Liquidators to avoid getting sick. Over the past week and half, financial and local media have been on a frenzy seeking out stories related to Lumber Liquidators. Interestingly enough, nobody noticed or reported on the relevant excerpt of a document posted by the California Air Resources Board on its website three days after the 60 Minutes episode aired. Consider this excerpt:
FACTS ABOUT
Flooring Made with Composite Wood Products
... “ As a general rule, we do not recommend removing a flooring product unless there are noticeable health effects (i.e. nose and throat irritation, a burning sensation of the eyes, wheezing, and difficulty in breathing), and other measures (see below) taken to alleviate them have failed and there is good reason to believe the flooring is the source of the problem.” ... “There are several steps that can be taken to alleviate emissions from indoor air pollutants such as formaldehyde. Proper ventilation, such as opening up windows, bringing fresh air through a central ventilation system, and running exhaust fans will expedite formaldehyde off-gassing from finished goods in your home as well as the odors from any finishes such as varnish or lacquer. Extended ventilation may be needed. Keeping indoor temperatures and humidity low, such as by using an air conditioner and/or dehumidifier to draw the moisture out of the air when humid, may help decrease the amount of formaldehyde that off-gasses into the indoor air. You may also leave your new product(s) in the garage or under a covered carport for a while to let it off-gas before bringing it inside the house. Panel products, flooring products and other finished goods that are covered with impermeable facing such as synthetic laminates may further reduce emissions.”... http://www.arb.ca.gov/html/fact_sheets/composite_wood_flooring_faq.pdf
He continues,
"If ultimately, Lumber Liquidators’ laminate flooring products are found to be non-compliant with CARB standards, the resolution most likely isn’t going to be the unlimited liability of removing all affected floors, as was suggested on the 60 Minutes episode, in light of CARB’s very own statement, posted on its website, after the airing of the 60 Minutes episode."
This means that scenario where Lumber Liquidators face class action lawsuit and an unlimited liability is unlikely. Read the rest of the report here.
Ă‚
