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Here's Why it is Apt to Own Tractor Supply (TSCO) Stock Now

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·6 min read
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Strength in the Life Out Here Strategy and healthy customer trends have been working well for Tractor Supply Company TSCO. The company’s focus on integrating its physical and digital operations to offer consumers a seamless shopping experience bodes well. The expansion of the store base and the incorporation of technological advancements are expected to increase traffic and drive top-line growth.

The above-mentioned factors have helped the company deliver a robust surprise trend, which continued in fourth-quarter 2021. TSCO’s top and bottom lines improved year over year and surpassed the Zacks Consensus Estimate. This marked the eighth straight quarter of an earnings surprise and a seventh consecutive sales beat.

Shares of the Zacks Rank #2 (Buy) company have rallied 35.3% in a year against the industry’s decline of 26.5%. The stock also outpaced the sector’s decline of 25.5% and the S&P 500’s growth of 5%.

The Zacks Consensus Estimate for its current financial year’s sales and earnings suggests growth of 8.2% and 9.2%, respectively, from the year-ago period’s reported numbers.

Zacks Investment Research
Zacks Investment Research

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Here's Why Tractor Supply Should Retain the Momentum

Tractor Supply is anticipated to retain its strong performance on a sturdy demand for everyday merchandise, including consumable, usable and edible products, as well as robust summer seasonal categories, which have been contributing to comparable store sales (comps) growth.

The company delivered the seventh straight quarter of more than a 10% increase in comps in the fourth quarter of 2021. Comps grew 12.7% year over year, driven by growth of 10.3% in comparable average ticket and a 2.4% rise in comparable average transaction count. The company witnessed comps growth in all geographic regions and key merchandising categories.

Tractor Supply is on track to build up its Out Here lifestyle assortment and convenient shopping format to gain customers and market share. The strategy is based on five key pillars, including customers, digitization, execution, team members and total shareholder return.

Earlier, the company launched the Field Activity Support Team (“FAST”), and implemented various technology and service enhancements across the enterprise. It is also in the initial phase of transforming its side lots and mature stores to improve space productivity, bringing the latest merchandising strategies to life and advancing efforts to remain nationally strong and locally relevant.

As part of the plans, TSCO revised the long-term financial growth targets for 2022-2026. Management envisions achieving net sales growth of 6-7% for the aforementioned period, while comps are expected to grow 4-5%. The operating margin is expected to be 10.1-10.6%, up from the earlier mentioned 9-9.5%. Earnings per share are likely to grow 8-11%, up from the previously stated 8-10%.

Tractor Supply also remains on track with the ONETractor strategy aimed at connecting store and online shopping. The company’s omni-channel investments, including curbside pickup, same-day, next-day delivery, a re-launched website and a new mobile app, contributed to digital sales growth in the fourth quarter. It witnessed solid double-digit sales growth in the e-commerce business, delivering the 38th consecutive quarter of increase. Its mobile app has more than 2 million downloads and accounts for above 10% of e-commerce sales.

The company’s Neighbor's Club loyalty program remains sturdy, with a year-over-year membership increase of 24%. Tractor Supply exited the fourth quarter with more than 23.6 million Neighbor's Club members. The company added 4.6 million customers year over year. These members are presently representing roughly 70% of sales under Neighbor's Club. The company is anticipated to reach more than $2 billion in sales by 2026.

Tractor Supply is persistently focusing on its growth initiatives, which include the expansion of store base and incorporation of technological advancements to induce traffic and drive the top line. The company is well-positioned to expand the store base, remaining on track to increase its domestic store to 2,500 in the long term. The Project Fusion is the company’s state-of-the-art space productivity program built to enrich customer experience in the mature store base.

Another key component of the company’s space productivity initiatives is the transformation of its Side Lot. It intends to remodel 150 stores and transform side lots across 100 locations in 2022.

The store investments target achieving higher market share and boosting productivity across the existing and new stores. TSCO continues to experience a positive halo impact from the garden center to the present store and vice versa. The addition of the product categories, greater ease of shopping and modern services help the company serve customers efficiently.

Management also provided upbeat guidance for 2022. The company expects net sales of $13.6-$13.8 billion. Comps are likely to grow 3-4.5%. The operating margin is anticipated to be 10.1-10.3%. Net income is expected to be $1.04-$1.08 billion. Earnings per share are likely to be $9.20-$9.50. The view does not include the impacts of the Orscheln Farm acquisition as it is currently subjected to customary closing conditions.

Looking for Other Solid Stocks? Check These

We have highlighted three other top-ranked companies in the Retail-Wholesale sector, namely Nordstrom JWN, Capri Holdings CPRI and Target TGT.

Nordstrom, a leading fashion specialty retailer in the United States, currently sports a Zacks Rank #1 (Strong Buy). JWN has an expected earnings per share (EPS) growth rate of 6% for three-five years. Shares of JWN have declined 43.7% in the past year.

You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Nordstrom’s current-year sales and EPS suggests growth of 5.7% and 200%, respectively, from the year-ago period’s reported figures. JWN has a trailing four-quarter earnings surprise of 13.9%, on average.

Capri Holdings, which operates in the global personal luxury goods industry, has a Zacks Rank of 2 at present. CPRI has a trailing four-quarter earnings surprise of 1,018.2%, on average. The stock has declined 11% in the past year.

The Zacks Consensus Estimate for Capri Holdings’ current-year EPS suggests growth of 215.8% from the year-ago period’s reported numbers. CPRI has an expected EPS growth rate of 53.9% for three-five years.

Target, a general merchandise retailer, presently carries a Zacks Rank #2. TGT has a trailing four-quarter earnings surprise of 21.3%, on average. Shares of the company have rallied 20.7% in the past year.

The Zacks Consensus Estimate for Target’s current-year sales and EPS suggests growth of 3.5% and 6.7%, respectively, from the year-ago period’s reported levels. TGT has an expected EPS growth rate of 16.5% for three-five years.

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Target Corporation (TGT) : Free Stock Analysis Report

Tractor Supply Company (TSCO) : Free Stock Analysis Report

Nordstrom, Inc. (JWN) : Free Stock Analysis Report

Capri Holdings Limited (CPRI) : Free Stock Analysis Report

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