Tractor Supply (TSCO) reported better-than-expected results for the second quarter, beating the consensus estimate by $0.05. Management reiterated its sales and EPS guidance for full-year 2008. We are increasing our sales and EPS estimates for 2008 and 2009.
Despite the difficult macro conditions - including higher food and energy prices and weak consumer confidence - Tractor Supply's focus on sales growth and cost controls is enabling the company to deliver solid results. We think the stock is still cheap and represents a buying opportunity at these levels. We maintain our Buy rating and increase our target price from $37 to $39, which is about 15x our 2008 EPS estimate.
In our view, Tractor Supply's unique retail concept, store locations, and target customer will help the company through the difficult macro conditions. Tractor Supply stores carry a wide selection of high quality, nationally recognized, name brand merchandise. It is a one-stop shop for farmers, ranchers, and rural landowners, offering a wide range of products from livestock and pet care products, to work clothing for the entire family. The company also markets a growing list of products under its private-label programs.
Tractor Supply shares currently trade at just 12.3x our 2008 EPS estimate and 11.8x our 2009 EPS estimate. This valuation is a discount to its historical P/E average of 23.5x trailing twelve month earnings. Given the difficult consumer spending environment, the stock may continue to struggle. However, we think TSCO shares discount below trend growth for the next few quarters.
Read the full analyst report on TSCO
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