Tractor Supply's Comp Sales Woes Persist, BMO Cuts Price Target

The ongoing comp woes of Tractor Supply Company TSCO is worrying BMO, which cut the price target on the stock by $24 to $74.

According to the brokerage, the company has joined other retailers such as Dollar General Corp. DG and Casey's General Stores Inc CASY who have been forced to scale back their expectations due to slowing growth in their markets.

Tractor Supply again cut its 2016 outlook on weakness in energy and agricultural producing markets, while hot weather slowed demand for the company's heating-related products.

"Clearly, there is an argument to made that these factors are weighing on results, but SSS growth has been decelerating since 2011's 8.2% growth and we see a P/E multiple reset emerging," analyst Wayne Hood wrote in a note.

"SSS growth has been decelerating from 2011's 8.2% growth to 5.3% in 2012, 4.8% in 2013, 3.8% in 2014, 3.1% in 2015, to an expected growth of 1.0% to 1.7% in 2016, which is well below management's target of 3-5%," Hood continued.

Consequently, Hood slashed his 2016, 2017, and 2018 EPS estimates to $3.22, $3.50, and $3.89, respectively, and 5-year EPS growth rate to 9.5 percent from 12.2 percent versus guidance of 13.0-15.0 percent.

"We see EPS power of $3.45 and $3.75 in 2017 and 2018, respectively, if the company is unable to restore SSS growth above 1%, as it would be challenging to leverage SGA expense at that rate of growth absent resizing the company's cost structure and growth initiatives," Hood added.

Hood maintained his Market Perform rating on the stock.

At time of writing, shares of Tractor Supply were down 0.92 percent to $68.74 after touching a new 52-week low of $68.50.

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Posted In: Analyst ColorEarningsNewsGuidancePrice TargetReiterationAnalyst RatingsBMOWayne Hood
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