Tractor Supply Has A Long Haul Ahead To Get Back To Earnings Growth

Headwinds

The firm thinks that at least two of the following discrete items would place a cap on earnings growth until next year:

• A big increase in incentive comp with a potential hit of $0.07–$0.08.
• Lap of extra week in fourth quarter with company upsizing impact from $0.03–$0.04 to $0.04–$0.05.

As a result, these two items would reduce about 3–4 percent EPS growth in 2017. Currently, the brokerage modeled EPS growth of 8 percent and adjusted EPS growth 11–12 percent, which is lower than the earlier estimation of 13–15 percent.

Related Link: Jim Cramer Gives His Opinion On General Dynamics Corporation And Tractor Supply Company

Valuation, Estimates And Expectations

Following the earnings beat in the third quarter, Goldman Sachs lifted its EPS estimate for 2016 from $3.24 to $3.25. However, the firm reduced its EPS expectations from $3.58 to $3.50 for 2017 and from $3.98 to $3.90 for 2018.

As a result, the brokerage reduced its target price from $77 to $73 to reflect the reduced EPS estimations while retaining the Neutral rating on the stock.

"We still believe in the long-term investment case, and are inclined to look for good entry points into the stock, but struggle to get more constructive today when earnings growth looks likely to remain subdued for some time, and shares still trade at 19.3X our 2017E EPS," analysts Stephen Tanal and Alison Levens told their clients in a research note.

At time of writing, Tractor Supply traded at $63.78, down 5.55 percent.

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