Lowe’s Companies, Inc. (NYSE: LOW) stock traded more than 5 percent higher Monday after CEO Robert Niblock announced his retirement. Investors applauded the move, and the change of leadership may be just what the company needs to close its performance gap with competitor Home Depot, Inc. ( HD).
According to Lowe’s, Niblock will stay on board while the company searches for his replacement. In a statement, Niblock says his departure is the right move for the company.
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“After a 25-year career at Lowe’s, including 13 years as chairman and CEO, I am confident that it is the right time to transition the company to its next generation of leadership,” he says.
Lowe’s stock has roughly tripled in the 13 years Niblock has served as CEO, but the stock has sputtered so far in 2018, dropping 5 percent on the year. In the most recent quarter, Lowe’s reported just 4.1 percent same-store sales growth, well short of Home Depot’s 7.5 percent growth.
The latest numbers are part of a pattern of underperformance from Lowe’s in recent years. Since March of 2015, Home Depot’s stock has gained 53 percent, while Lowe’s stock is up just 18.7 percent.
Bank of America analyst Elizabeth Suzuki says the change of leadership may be just the catalysts the market has been waiting for.
“Investors in LOW have long been frustrated by the company’s underperformance relative to rival Home Depot in terms of same-store sales growth, operating margins, and stock performance for the last several years,” Suzuki says.
Suzuki says Niblock’s replacement will likely be an outside hire and that leadership is one of several reasons for investors to be optimistic about the company’s 2018. Lowe’s recently guided for solid 3.5 percent same-store sales growth this year, and Suzuki says the company’s earnings guidance may be conservative. In addition, Suzuki says investors will soon see heavy investments in omnichannel sales and customer experience start to pay off.
Finally, Lowe’s stock currently trades at just 15.4 times Bank of America’s 2018 earnings per share estimate, a meaningful discount to Home Depot’s 17.9 price-earnings ratio.
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“We believe that as LOW executes change and drives comp growth it should narrow the valuation gap,” Suzuki says.
Bank of America has a “buy” rating and $105 price target for LOW stock.
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CEO Departure Brings Lowe’s Companies, Inc. (LOW) Stock To Life originally appeared on usnews.com
