Tractor Supply Company Is A Buy Ahead Of Earnings
Stay-at-home and lifestyle stocks like Tractor Supply Company (NASDAQ: TSCO) are among the biggest winners of the pandemic. The pandemic was a game-changing event for the company that amplified sales just as a new CEO and his well-timed plans were beginning to bear fruit. Now, almost two years since the shutdowns began, the secular tailwinds put in place by the pandemic are still blowing and are about to drive this stock to new highs.
The Analysts Are Underestimating Tractor Supply Company
Tractor Supply Company is slated to report Q4 earnings on January 26th and we see it blowing past the current Marketbeat.com consensus estimate. The analysts are expecting to see a seasonal upswing in business but at a lower rate than what we’ve seen in the past few quarters. Not only is the company experiencing solid organic growth but its eCommerce business is firing on all cylinders, prices are rising, and the company is expanding its footprint.
In our view, the $2.21 consensus is off by at least $0.1 billion and could be even lighter. Our baseline expectation is for revenue growth of 15% or $3.31 in net revenue with risk to the upside. The strength should carry through to the bottom line as well, the question is how badly will inflationary and supply-chain pressures impact the results. In our view, adjusted EPS should come in above the consensus and possibly well above the consensus if margins hold up.
Tractor Supply Is About To Raise The Dividend
Tractor Supply Company is not a high-yielding stock but it is a very safe payout with a high expectation for aggressive growth. The company’s 0.90% yield is backed up by a low 24% payout ratio, a 17% distribution CAGR, and an 11-year history of increases. Other factors in factors in favor of another aggressive increase are the company’s tendency to beat the consensus estimates and the rock-solid balance sheet. The company is net debt but with an incredibly low leverage ratio and a coverage ratio well into the double digits. The bottom line, we will be very surprised if the company does not raise the dividend and by at least 10%.
The Analysts Are Driving Tractor Supply Company Higher
The analysts are driving Tractor Supply Company Higher and there is still plenty of room for them to go. The Marketbeat.com consensus rating is still only a weak Buy with a noticeably bullish trend among the analysts. At least a dozen analysts came out to upgrade and/or update their price target in the wake of the last earnings report and activity has begun to pick up again already.
Two analysts issued positive commentary at the end of December 2021 including an upgrade from Hold to Buy with a price target of $255 (the new high price target) and a price target increase of $16 to $232. This compares to the consensus estimate which assumes a 7% downside for the stock but there is something else to consider. The consensus price target is up 60% YOY, 14% in the last 90 days, and 1.2% in the last 30 and we don’t see these trends ending.
The Technical Outlook: Tractor Supply Company Is Trending Higher
Shares of Tractor Supply Company have been trending higher since the pandemic bottom in 2022. Price action recently set a new all-time high and is now pulling back to support. We expect to see support buying kick in above the short-term EMA and possibly above the $230 level if not higher. Price action may move sideways over the next week or two but, assuming the results are as good as we predict, the stock should break out of consolidation and move up to a new high.
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