Lumber Liquidators shares are exploding higher - and one analyst is betting the company will be fine

Shares of Lumber Liquidators are flying higher on Tuesday, rising as much as 13% after crashing on Monday.

Shares of the company fell 25% on Monday after a report on "60 Minutes" detailed apparent violations at some of the companies suppliers in China and unsafe levels of formaldehyde in its laminate flooring products.

Lumber Liquidators said in a statement that "60 Minutes" used an improper testing method.

And as shares of the company bounce back, a research note from at least one firm published on Tuesday defended the stock, the company, and said that eventually all the negative publicity created by the "60 Minutes" report will blow over.

In a note to clients, analysts at Janney Capital Markets upgraded their rating on Lumber Liquidators shares to "Buy" from "Neutral" and said fears related to fallout from the "60 Minutes" piece are "overblown."

Here's Janney:

• We are satisfied that LL is CARB compliant. We believe 60 Minutes did not provide a complete picture of the issue. It didn't highlight victims, had no feed back from regulators and relied on anonymous Chinese factory workers making accusatory statements. There was no attempt to discuss different testing methodologies used, and account for the fact, that the testing that LL uses, makes them CARB compliant.
• We are also confident that unless the LL management team is entirely untrustworthy, and willing to risk everything for what would have been a few million dollars in annual savings, when they fully tell their side of the story they will be largely exonerated. It simply does not pass the common sense test. LL saw EBIT margin raise about 600bp in 2010-2013. To risk all that for a few million dollars, just makes no sense. This is not a critique of 60 minutes, they are good at what they do, but the commons sense test favors LL.

The firm added that it believes recent margin gains at Lumber Liquidators are "largely sustainable."

In a presentation, hedge fund manager Whitney Tilson, who is short shares of Lumber Liquidators, said that the rapid increase in the company's gross margin raised red flags that something appeared amiss at the company.

On Monday, Piper Jaffray analysts said that the "60 Minutes" piece was worse than they had anticipated after the company hinted on its earnings conference last week that the piece would show the company in a negative light.

Morgan Stanley also removed its price target on shares of Lumber Liquidators following the "60 Minutes" report.