Tractor Supply Stock Forecast Shows Deepening Moat

Key Points

  • Tractor Supply Company has developed a deepening moat relative to competitors. 
  • The stock is fairly valued relative to peers and offers a safe dividend. 
  • The outlook for earnings supports an outlook for robust dividend increases as well. 
Tractor Supply Stock Forecast

The Tractor Supply stock forecast shows a fast-growing, well-entrenched yet uncovered investment opportunity that successfully competes with the likes of Walmart Inc. (NYSE: WMT) and Target (NYSE: TGT) as well as The Home Depot Inc. (NYSE: HD), Lowe’s Companies Inc. (NYSE: LOW) and other outdoor activity, lifestyle and home improvement companies. By the end of this article, you'll know the pros and cons of an investment in Tractor Supply Company (NASDAQ: TSCO)

So, what exactly is Tractor Supply Company? A company that sells tractors?

No, but it is possible to get small tractors and tractor supplies at the store. Tractor Supply Company is a retailer focused on "Life Out Here." "Life Out Here" is the company’s motto and represents its target market: individuals, families, farms, ranches, businesses and organizations that enjoy and actively participate in rural lifestyle and activities. The company’s goods range from snacks and food items to clothing, tools, gardening/farming equipment, livestock supplies, feed and all forms of modern technology. 

The company has isolated itself from competition and comes with a substantial moat. Other big box stores like Walmart and Target focus on population-dense areas such as cities and suburbs, but Tractor Supply does the opposite. Its stores are centrally located in population-rich rural areas not served by other operators. It's often a multiple-trip-per-week destination for many of its customers and the company works hard to acquire and keep them. 

TSCO Stock Forecast

The TSCO stock forecast took on a new tone in January 2020 when the company hired Hal Lawton as CEO. Lawton had more than 15 years of experience in retail coming into the job after holding key positions at Home Depot, eBay and Macy’s prior to his hire. Lawton introduced the "Life Out Here" concept, fully engaged the company’s e-commerce potential, improved merchandising, expanded its footprint and oversaw unprecedented growth aided by the COVID-19 pandemic. 

Tractor Supply Company’s business has more than doubled since the onset of the COVID-19 pandemic. Many other businesses saw revenue spike during the pandemic but most have since fallen. However, that's not the case for Tractor Supply Company stock. This company has not only sustained its pandemic-induced revenue levels but it is still growing under the influence of shifting demographics (people moving to the country), e-commerce and organic expansion. What this means is a steady tailwind for tractor supply share price that should blow throughout 2023 and beyond. 

Is Tractor Supply Stock Undervalued?

Tractor stock is not undervalued but it is not overvalued either. The shares were trading for about 20x in October 2022 which was high compared to the broad market but in line with its peers. As far as the peers go, there really isn’t one that directly compares so it is important to look at the range of big box stores. 

Costco is the highest-valued of the big box retailers and often goes for 30x to 35x its shares but it is a membership club and perhaps the worst comparison. Walmart, which includes membership club Sam’s Club, trades for a cheaper 23x earnings. In this light, Tractor Supply is a bit of a value. Compared to Target, however, which was also trading at 20x its earnings, the Tractor Supply Company share price is fairly valued. However, that’s not the end of the story. 

Walmart and Target share many product categories with Tractor Supply Company, but not all of them. Home Depot and Lowe’s are also fair comparisons and they were trading at 16x and 13x their earnings in the same period. So, is Tractor Supply a good stock to buy?

The answer may be in the dividend and capital return. 

The stock paid about 1.9% in yield with a robust outlook for dividend increases and share repurchases, while its competitors were paying about 1.7% (WMT) to 2.8% (TGT and HD) in yield. The most interesting fact in the dividend stock history is the most recent distribution increase was worth 80% to investors and more like it could be on the way. 

Are dividend stocks worth it? Only if you want to earn income from your investments, reduce volatility in your portfolio and generate long-term capital gains (though you will have to consider the dividend stocks tax rate — it's not all fun and games). 

Tractor Supply Stock Rating 

Nineteen analysts with current ratings or ratings less than one year old (many are less than six months old) have the stock pegged at "moderate buy." This rating is firming versus 2021's weaker "moderate buy," which shows some positive activity during the period. The consensus price target was up in 2022 versus 2021 but appears to have peaked just ahead of its Q3 earnings release. The release proved the company’s strategy is working and may lead increased analyst ratings in the future. In this scenario, the Tractor Supply share price will have yet another tailwind to support it. 

Tractor Supply Stock History

Tractor Supply stock history shows the company was in a general uptrend ahead of the COVID-19 pandemic but had entered a large trading range in the few years just before it began. The stock set a new high in mid-2019, which led to a correction that was amplified by the initial COVID-19 sell-off that rocked the broad market. That low, a much higher low than the previous major correction in 2017, led to a rally that has yet to end. The stock price shot up more than 240% from its 2020 lows and the uptrend is still intact. The price has pulled back to major support at the 30-month moving average but it appears well-supported at this level. 

Tractor Supply Earnings 

Tractor Supply earnings were strong in Q3 of 2022, strong enough for the company to raise its guidance and by a wide enough margin to offset the difference in the 53rd week of 2022. The company reported 8.4% in net revenue growth for Q3, driven by a 5.3% increase in comp store sales. The comp was driven by a 7% increase in ticket averages offset by a slight decline in average tickets. The revenue missed the consensus estimate, however, but by a very slim margin, and the miss is offset by margin strength. 

Tractor Supply Company reported a 32-basis point decline in gross margin and a 16-basis point increase in SG&A expense but neither is cause for alarm. The decline in gross margin is due to product mix and not costs while the SG&A increase was attributed to growth efforts. In both cases, the margin came in better than expected and led to outperformance on the bottom line. The $2.10 in GAAP EPS is up 7.7% from Q3 2021 and beat the consensus estimate by a slim margin. 

Tractor Supply Forecast Revenue Growth

Tractor Supply did not give guidance for 2023 but it did give guidance for the remainder of 2022. The company upped its revenue target to $14.06 billion at the low end, above the previous high end and a similar increase was made in the EPS outlook. The company looks for EPS to top $9.55 at the low end versus the prior guidance with $9.60 at the high end. The analysts are expecting to see revenue grow by at least 6.5% in 2023 and for margins to widen and produce EPS growth in the range of 9% to 10%. 

Grow Your Portfolio With Tractor Supply Company

Tractor Supply Company isn’t a value (the TSCO price may stretch your pocketbook) or a great yield but it is a blue-chip quality company with a deep moat. The company continues to grow while paying a very safe dividend. The outlook for earnings is positive for 2023 so the share price should move higher over the long term as well. Investors looking to build a large dividend stock portfolio of safe-haven blue chip stocks could do much worse. 

Companies Mentioned in This Article:

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Tractor Supply (TSCO)$221.03-0.4%1.66%24.00Moderate Buy$233.94
Home Depot (HD)$318.28-0.2%2.39%19.19Moderate Buy$346.29
Walmart (WMT)$153.04-0.3%1.46%47.23Moderate Buy$160.14
Lowe's Companies (LOW)$207.65-0.7%2.02%20.34Moderate Buy$231.35
Target (TGT)$163.60-1.1%2.64%22.41Moderate Buy$185.07
Costco Wholesale (COST)$530.65-0.1%0.68%40.38Moderate Buy$565.54

Find out why slow and steady wins the race with DividendStocks.com.