J.C. Penney's (NYSE:JCP) CEO Marvin Ellison is leaving to become CEO of Lowe's (NYSE:LOW), helping drive JCP share price down for the day. Ellison's departure increases the risk level for J.C. Penney, but also is potentially favorable for its stock. He leaves the company in a reasonably stable situation, but he was also unable to grow its comps during the last couple years. A new CEO expands the range of possible outcomes for J.C. Penney's growth trajectory, which results in increased bankruptcy risk but also a higher chance that the company can grow enough to deliver value for its stock.
A high-variance situation can be positive for a stock even though there is a higher risk of bankruptcy. This can be seen with J.C. Penney's higher stock price several years ago, when it had a higher risk of bankruptcy but also could tantalize investors with the potential for mid-single digit comparable store sales growth.
