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Investor Alert

July 9, 2020, 1:04 p.m. EDT

Mohawk Industries' stock dives, as analyst says lawsuit could an 'overhang' for months

Shares of Mohawk Industries Inc. (NYS:MHK) plunged 19.1% in midday trading Thursday, amid concerns over a lawsuit against the commercial flooring products company regarding alleged financial misconduct. The stock has taken a 28.4% dive over the past three days, as details of the lawsuit have become more known. J.P. Morgan analyst Michael Rehaut said the details of the class action complaint, as provided in a filing dated June 29 by the Public Employees' Retirement System of Mississippi, included channel stuffing at the end of the quarter and intentionally overproducing product in order to expand operating efficiencies and benefit margins. "While the veracity of these accusations will likely not be determined until after an extended legal process, which may take the next several months if not longer, we believe that until this matter has been concluded, this lawsuit will likely remain an overhang on the stock...," Rehaut wrote in a note to clients. "Additionally, we believe a higher level of risk now exists for the company due to this lawsuit, given its fairly granular level of detail across the allegations, combined with quotes from interviews with several former employees (including a distribution center manager and a former member of the executive team)." The stock has tumbled 45.8% year to date, while the S&P 500 (S&P:SPX) has lost 2.8%.

Link to MarketWatch's Slice.