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Tractor Supply Returns to Teens Profit Growth

Stock (Symbol)

Tractor Supply (TSCO)

Stock Price

$95

Sector
Retail & Travel
Data is as of
May 5, 2016
Expected to Report
Jul 20
Company Description
tractor_supply_storeTractor Supply Company is an operator of rural lifestyle retail stores in the United States. The Company focuses on supplying the lifestyle needs of recreational farmers and ranchers, as well as tradesmen and small businesses. As of December 27, 2014, it operated 1,382 retail stores in 49 states under the names Tractor Supply Company, Del’s Feed & Farm Supply and HomeTown Pet. It also operates a Website under the name TractorSupply.com. It offers a portfolio of products, which include equine, livestock, pet and small animal products; hardware, truck, towing and tool products; seasonal products, including lawn and garden items, power equipment, gifts and toys; work/recreational clothing and footwear, and maintenance products for agricultural and rural use. Its products are offered under various brands, which include 4health, Blue Mountain, Countyline, Equistages, Groundwork, Huskee, JobSmart, Dumor, C.E. Schmidt, Paws & Claws, Producer’s Pride and Redstone, among others. Source: Thomson Financial
Sharek’s Take
David SharekTractor Supply (TSCO) posted solid profit growth of 19% last qtr, besting the 10% growth analysts had estimated. Sales at the largest operator of rural lifestyle retail stores increased 10%, helped by 5% same store sales growth which was the 32nd consecutive qtr of positive SSS. Snow and cold in January as well as warm weather in March provided good selling conditions. TSCO’s combination of store growth of 7% to 8% per year, same store sales growth of 3% to 4%, expanding profit margins, and stock buybacks could produce long-term profit growth in the high-teens. But the stock is richly valued at 27x earnings. 2016 is expected be good as the company grows its Purina selection, expands its outdoor recreational equipment, and rolls out its loyalty club program. Management projects expanding from 1,500 locations to 2,500 long-term as it grows from the Midwest & South to the West and populated Northeast. This is a solid selection for both growth investors and conservative ones, but investors looking for higher rates of return might wish to wait and try to buy TSCO on a dip.
One Year Chart
TSCO_2016_Q22QtrsAgo TSCO warned that it wouldn’t hit profit estimates, and I expected the stock to fall on the news. But it didn’t give up much, and the 19% profit growth last qtr helped boost the stock near its highs. After TSCO reported, future qtrly estimates stayed around where they were. The P/E of 27 is much higher than the Est. LTG of 15%.
Fair Value
TSCO_2016_Q2_PHI felt TSCO has been overvalued for years. Obviously I have been wrong as the stock has gone much higher. My issue is I am trying to buy the stock for the Growth Portfolio at around 23x earnings and it rarely gets that low. Currently the P/E is 27, which is around the top of its range.
Bottom Line
TSCO_2016_Q2_10yrTractor Supply is a solid company with loyal shoppers who use the store on a continuous basis to purchase farming supplies and more. Analysts estimate the company will grow 15% a year long-term, and portfolio managers like the stock so much they have given the stock a premium valuation. TSCO ranks 19th of 35 stocks in the Conservative Growth Portfolio Power Rankings and the stock on the radar for the Growth Portfolio where I will try to buy on a dip.
Power Rankings
Growth Stock Portfolio

N/A

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

19 of 35

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