Lumber Liquidators Holdings

LL : NYSE : US$99.80
BUY 
Target: US$ 120

COMPANY DESCRIPTION:
Lumber Liquidators is the largest specialty retailer of hardwood flooring in the U.S. The company offers premium hardwood
flooring products in a wide variety of domestic and exotic wood, as well as engineered products, laminates, bamboo, cork, and
accessories. Lumber Liquidators assortment is largely comprised of proprietary brands including the flagship Bellawood brand

SSS MOMENTUM PUSHES OUR H2 EPS ESTIMATES HIGHER
Investment recommendation
Very strong sales results at Home Depot (HD : NYSE : $73.73 |HOLD), and Lowe’s (LOW : NYSE : $45.81 | HOLD) this week
points to a rapid recovery in big-ticket home-improvement purchases. On the heels of LL management’s positive
presentation at the Canaccord Genuity Global Growth Conference on August 14, we believe the company’s improved value
proposition will enable it to grow rapidly in this environment, fueled further by a broader advertising message with an
increased focus on the do-it-for-me customer. The new store

Flooring Project – Stairs Landing in Diagonal (Photo credit: 1Sock)

format is in only 8% of LL’s footprint, and we believe it can drive
20% store-level growth as it ramps.
Investment highlights
 We are raising our Q3 EPS estimate by $0.05 to $0.66, in line with consensus. Our Q3 SSS forecast increases from +10% to +15% on top of +12%.
 New distribution centers should improve efficiency and support continued top-line growth and margin expansion. LL
is consolidating one of two east coast DCs into a facility 33% larger, and it will open its first west coast location in
California.
 Incorporating our updated projections into our discounted cash flow model raises our price target from $119 to $120.

Related articles

• Lumber Liquidators Investing Up to $48 Million in New Distribution Centers (fool.com)

Tembec Inc. SALE OF SKOOKUMCHUCK NBSK PULP MILL

English: Tembec mill in Kapuskasing, Ontario, Canada (Photo credit: Wikipedia)

TMB : TSX : C$3.35
BUY 
Target: C$4.00

COMPANY DESCRIPTION:
Tembec Inc. produces forest products, pulp, paper, paperboard, and chemicals. The company’s Forest Products division produces softwood lumber, hardwood lumber, hardwood flooring, etc. The Pulp division manufactures various types of pulps, while the Paper division produces newsprint and paperboard including coated covers, bleached paperboard for packaging, and bleached linerboard.

Investment recommendation

Tembec announced the sale of its Skookumchuck NBSK mill for $89 million, including working capital, to Paper Excellence. The transaction
is expected to close in Q2/13 and is subject to certain conditions and approvals. The Skookumchuck mill has capacity of 255,000 tonnes  of
NBSK with its pulp shipped to North American and Asian customers.
The transaction implies a price per tonne of $350/t. Tembec management disclosed on its Q1/F13 conference call in late January that it had intended to sell the NBSK mill within the next 12 months. The Skookumchuck mill is the only NBSK mill that Tembec was operating, therefore, not a core asset within its portfolio. We expect that most of the proceeds from this transaction will go toward the boiler/turbine upgrade project at Tembec’s Temiscaming facility.

As of the last conference call, Tembec indicated that the project’s schedule has been pushed back, and that it is currently re-evaluating the project’s timeline and capex requirements. Overall, we had expected this announcement in the first half of 2013 to improve the liquidity toward the funding of its green energy initiative. We view the announced transaction as moderately positive as it should improve the company’s liquidity
position and enable it to move forward on the green energy project. We are reiterating our BUY rating and raising our target price to C$4.00
from C$3.50.
Investment highlights
 We have revised our estimates assuming that the transaction closes in late Q3/F13 with proceeds of $89 million. We will revisit our estimates as necessary following the update on the Temiscaming project timing expected with the Q2/F13 results in late April.
Valuation
Our 12-month target price of C$4.00 represents an EV/EBITDA multiple of 5.4x our F2014 EBITDA estimate.

Related articles

• Canfor Pulp – Rebound ? (amp2012.com)
• Tembec mill upgrade may benefit from mining pullback (theglobeandmail.com)