Favorable Weather Conditions Isn't Enough To Keep This Analyst Bullish On Tractor Supply Company

Tractor Supply Company TSCO's stock experienced a rough start to 2017, but ended on a high note as the company likely benefited in the fourth quarter from colder than expected temperatures in November and December.

This isn't reason enough to continue buying the stock, according to one analyst.

The Analyst

Wedbush's Seth Basham downgraded Tractor Supply's stock from Outperform to Neutral, with a price target boosted from $72 to $80.

The Thesis

Favorable weather conditions in November and December makes the case for a better than expected performance in the fourth quarter, while first quarter 2018 weather trends appear to be the same so far, Basham said in a note. The stock's valuation needs to be taken into account as it's trading at 20 times the analyst's 2018 earnings per share estimate, which already factors in tax reform benefits and other favorable trends. The stock is also trading at an appropriate valuation for a company that can grow its EPS by 11 percent over the longer-term.

The rural lifestyle retailer's 2018 guidance could come in "modestly disappointing" and roughly in-line with the initial guidance provided last year for 2-3 percent comp growth and a mid-single-digit to a high-single-digit EPS growth, according to Basham. The company is also active in investing in technology-related and customer-centric projects and could also be negatively impacted by wage inflation and incentive compensation costs.

Price Action

Shares of Tractor Supply were trading lower by around 0.4 percent Thursday at $78.12.

Related Links:

Tractor Supply Downgraded; What's A Fair Value For The Stock Now?

6 High Tax Paying Stocks To Watch