The Bull Vs. Bear Debate Continues After Tractor Supply Earnings Top Street

The debate between bulls and bears on Tractor Supply Company TSCO continues despite the rural lifestyle retailer reporting better-than-expected quarterly earnings.

Tractor Supply reported 3.1 percent comp (vs. consensus 1.9 percent) and EPS of $0.94 (vs. consensus $0.91), driven by cold weather conditions in December.

Further, the company guided to a positive comp in the first quarter and sees full year 2017 largely in line with buy side expectations.

But, bears may point out gross margins were below expectations and less favorable guidance that may or may not prove conservative.

Analyst Commentary

As such, Adam Sindler of Deutsche Bank pointed out the positives and negatives of Tractor Supply’s results.

Positives:

• Sindler said the recent Baker Hughes rig count update that showed the average national rig count is up year-on-year for the first time in eight quarters. The analyst believes rig count is a key metric to track relative to comp health versus "energy markets."
• Further roll out of the recent Neighbors Club customer loyalty program, which is delivering early positive results.

Negatives:

• Persistent deflation. Tractor Supply sees deflation at least for the first part of 2017. The analyst expects about 40 basis points of deflation for the first half before turning flat in the fourth quarter.
• Store growth guidance that slowed to DB’s below consensus estimate of 100 stores for 2017.

“Combined, we believe these two issues have taken anywhere from 100 basis points of comp to as much as several hundred basis points of comp out of the reported numbers. This leaves TSCO more exposed to the weather as we saw in 2016 - both good and bad,” SIndler wrote in a note.

Meanwhile, the company reiterated its goal to eventually work back to 3 to 5 percent comps and mid-teens earnings growth, while discussing the potential for EPS growth to slow slightly to the high double digit range over time.

Staying Sidelined

Sindler reiterated his Hold rating and $72 price target on the Tractor Supply stock.

At last check, shares of Tractor Supply had risen 1.84 percent on the day to $73.70.