Lowe’s Companies, Inc. (NYSE: LOW) announced Tuesday that it has hired J.C. Penney Co. ( JCP) CEO Marvin Ellison to take over as the new chief executive of Lowe’s. Ellison had been working on a turnaround plan for J.C. Penney, but analysts say Lowe’s is more interested in his 12 years of home improvement experience at Home Depot ( HD).
Ellison will replace departing Lowe’s CEO Robert Niblock, who announced his retirement in March. J.C. Penney has struggled under Ellison’s command after he took over at the helm in 2014. However, Lowe’s stock traded higher on Tuesday morning, suggesting investors feel Ellison was simply dealt a losing hand at J.C. Penney.
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During his tenure at Home Depot, Ellison served as executive vice president of U.S. stores and was credited with restructuring the company’s professional customer initiatives. Today, professional home improvement customers account for roughly 40 percent Home Depot’s customer base and 30 percent of Lowe’s customer base, according to Bank of America.
Bank of America analyst Elizabeth Suzuki says Ellison has an excellent opportunity to improve Lowe’s business and get its performance on par with Home Depot. “Since reinstating coverage in September, we have had a preference for LOW over HD due to the opportunity for LOW to close the performance and valuation gap,” Suzuki says.
After activist investor D.E. Shaw placed three new board members on the Lowe’s board in March, Suzuki says the new CEO hiring is another sign that the wheels of change are starting to turn. “We believe that Ellison’s proven track record at HD will be a welcome change to LOW as it continues its transformation strategy,” Suzuki says.
Mike Bailey, director of research of FBB Capital Partners, says the initial market reaction suggests investors see Lowe’s as a better company with Ellison on the team.
“If Ellison can help bridge the execution gap between HD and LOW, then investors will likely reap the rewards,” Bailey says.
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“A key part of our investment thesis is that LOW, with the help of activist investors, will turn around some spotty execution which has resulted in HD growing same-store sales much faster than LOW since 2015.”
In addition to the “buy” rating, Bank of America has a $105 price target for LOW stock.
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Lowe’s Companies, Inc. (LOW) Is Better With J.C. Penney’s CEO originally appeared on usnews.com
