Jefferies analysts said in a note Wednesday that Lowe's (NYSE:LOW) is revamping its value proposition in rural America.
The analysts, who reiterated a Buy rating and $250 price target on the stock, explained that the company's CEO, Marvin Ellison, was born in rural Tennessee, and the firm's checks indicate he's "returning to his roots, with a merchandising revamp spreading across stores in small-town USA."
They explained that the rural pilot started in 2020 with two stores in Tennessee localized to better cater to small-town America. However, Jefferies checks now indicate the pilot has multiplied and is expanding.
"LOW store employees in rural USA point to >50 stores that have undergone the revamp. Associates in TN, KY, and NC tell us their stores are 'next in line' to undergo a refresh with the goal of 'imitating Tractor Supply (NASDAQ:TSCO),'" they wrote.
"Since CEO Ellison joined in '18 there have been no 'pet projects', and we believe this initiative is poised to exit the pilot stage toward broader roll-out in LOW's 400+ rural stores (pilots last for ~2 yrs and it's been ~26 months). Encouragingly, customer satisfaction at recently-revamped stores average 4.0 / 5.0, higher than many deep South stores slated for refreshes."
The analysts noted that the move expands LOW's TAM, drives trip frequency, and enhances SPSF with minimal incremental costs / CapEx. They added that LOW's valuation remains attractive.