Tractor Supply Co. (TSCO) has a record of consistent growth, an experienced management team, a clean balance sheet, and continues to invest in new technology. Our rating is BUY, writes Taylor Conrad, an analyst with Argus Research.
The company benefits from its Neighbor’s Club program, a rewards program where customers can earn points on their purchases and obtain a private-label credit card. The Neighbor’s Club engages customers, currently exceeds 28 million members, and represented nearly 75% of sales in 2022. We also have a favorable view of its “Buy Online, Pick Up in Store” program, which drove website and mobile app enhancements and accelerated online sales.
Furthermore, TSCO is taking advantage of the increase in pet ownership by expanding its pet wash and pet wellness centers. Management has signaled confidence with a 12% dividend increase in February 2023, for a yield of about 1.8%.
Meanwhile, Tractor Supply recently reported fourth-quarter results that topped consensus expectations for the twelfth consecutive quarter. TSCO posted 4Q diluted EPS of $2.43, up 26% from the prior year and $0.08 above the consensus. Revenue of $4.0 billion was up 21%.
For the full year, the company has earned $9.71 per share. Along with 4Q results, Tractor Supply provided 2023 guidance. Management projects comp sales growth of 3.5%-5.5%. It expects net sales in the range of $15.0-$15.3 billion, implying growth of 6%-8%. It expects net income of $1.13-$1.17 billion and EPS of $10.30-$10.60. It also expects an operating margin in the range of 10.1%-10.3%.
Management looks for capital expenditures of $700-$775 million, most of which will be invested in growth initiatives. Management also noted that its anticipated capital expenditures include plans to open approximately 70 new Tractor Supply stores, continue the Project Fusion remodels and garden center transformations, along with opening 10 to 15 new Petsense stores.
The company also grows through acquisitions. In October 2022, after receiving clearance from the Federal Trade Commission, the company completed its acquisition of Orscheln Farm and Home. TSCO acquired 166 Orscheln Farm and Home stores for approximately $320 million.
As part of the deal reached with the FTC, Tractor Supply will divest 85 locations to two buyers, Bomgaars Supply, Inc. and Buchheit Enterprises, Inc. Proceeds of the divestitures will be approximately $72 million.
Recommended Action: Buy TSCO.
