A recent special report on 60 Minutes focused on alleged health risks of Chinese-made laminates sold at Lumber Liquidators Holdings Inc LL 10.24%.
In response to the controversy, analysts at Credit Suisse performed a follow-up investigation on the impact of the story.
Their investigation included a survey of 1,489 homeowners, an assessment of online sentiment among Lumber Liquidators customers and direct conversations with Lumber Liquidators management.
Homeowners Are Aware
The 60 Minutes piece had 13.55 million viewers, and Credit Suisse’s survey indicates that 38 percent of homeowners are aware of the story.
Among those that have seen or heard about the story, more than 85 percent indicate that it has negatively affected their perception of Lumber Liquidators.
Only 43 percent claim that they would still consider buying flooring from Lumber Liquidators.
Fallout Only Temporary
Analysts believe the negative reverberations from the 60 Minutes story will only be temporary for the company.
They suggest that three things need to happen in order for Lumber Liquidators to win back customers:
1. There needs to be more research that provides data to customers that Lumber Liquidators products are safe.
2. There needs to be an increase in domestic production of Lumber Liquidators flooring products.
3. There needs to be stricter government oversight of product safety.
According to the survey, lowering prices or offering customers discounts is not a viable short-term solution for the company.
Who Benefits?
The Credit Suisse survey indicates that, for now, many Lumber Liquidators customers will be considering shopping at The Home Depot Inc HD 2.68% and Lowe’s Companies Inc LOW 2.56% as alternatives.
However, Credit Suisse names Mohawk Industries Inc MHK 0.89%, which holds nearly half of the U.S. ceramic tile market share, as the biggest potential beneficiary from Lumber Liquidators’ negative press.
Credit Suisse has an Outperform rating on Mohawk and a $200 price target for the stock.
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