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Tractor Supply Shares Soar on Year End

Zacks Equity Research

The shares of Tractor Supply Company (TSCO) reached a new 52-week high of $78.17 on the last day of 2013, closing trade slightly below at $77.58. This farm and ranch store chain retailer has been on the rise, driven by its consistent focus on maximizing productivity, expanding store base, technological advancements and initiatives to expand its brand portfolio.

Moreover, this stock looks promising on strong metrics, having generated a full-year return of roughly 68.9%. The average volume of shares traded over the last 3 months was approximately 981.9K. The company currently trades at a forward P/E of 33.9x, a 73.8% premium to the peer group average of 19.5x. The company’s premium valuation is justified, as its long-term forecasted earnings per share (EPS) growth rate of 17.9% is higher than the peer group average of 16.2%.

Tractor Supply is the largest operator of farm and ranch stores in the U.S., and has a unique market niche of serving the lifestyle needs of recreational farmers and ranchers. The company continues to progress well on its growth initiatives focused on expanding its store base and incorporating technological advancements to serve clients better.

Additionally, the company is working towards modifying the merchandise assortment across its stores in line with the change in consumer preferences due to the prolonged economic downturn. We believe these initiatives will induce more traffic to its stores and boost the top line.

Apart from the aforementioned reason, the company’s track record of posting robust quarterly earnings, an upbeat guidance and a solid financial position induced a positive movement in the stock.

The earnings surprise history of this Zacks Rank #2 (Buy) company shows that it has outperformed the Zacks Consensus Estimate for nearly five consecutive years, the only exception being first-quarter 2013 in which the company posted in-line earnings. The average surprise for the trailing four quarters stands at 8.1%.

In third-quarter fiscal 2013, the company posted strong financial results with adjusted earnings of 46 cents per share, up 31.4% year over year. The results also surpassed the Zacks Consensus Estimate of 41 cents. Tractor Supply’s total revenue rose 13.4% to $1,208.1 million in the quarter.

The company raised its outlook for fiscal 2013, projecting sales in the range of $5.12–$5.17 billion, with comps expected to improve 4.2%−5.0%. Moreover, Tractor Supply now anticipates 2013 earnings per share in the range of $2.24 to $2.27.

The encouraging results and a favorable outlook triggered an upward thrust in the Zacks Consensus Estimate. For the fourth quarter of fiscal 2013, the Zacks Consensus Estimate of 65 cents increased by a penny in the last 90 days. For fiscal 2013 it escalated 2.2% to $2.29 a share over the same time frame.

Apart from Tractor Supply, companies such as Avis Budget Group Inc. (CAR), The Home Depot Inc. (HD) and Hertz Global Holdings Inc. (HTZ) achieved new 52-week highs of $40.72, $82.47 and $28.90, respectively, on Dec 23, 2013.

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