This Analyst Downgrades Tractor Supply Despite EPS Beat, Cites Short-Term Hurdles

Raymond James analyst Bobby Griffin downgraded Tractor Supply Company TSCO to Outperform from a Strong Buy while raising the price target to $250 (from $230).

The analyst is bearish on the stock following the fourth-quarter results reported yesterday. Sales declined 8.6% year-on-year to $3.66 billion, marginally missing the consensus of $3.67 billion and, adjusted EPS of $2.28 beat the Wall Street view of $2.22.

The company expects EPS of $9.85 – $10.50 versus the $10.32 estimate. It sees net sales of $14.7 billion – $15.1 billion versus the consensus of $15.03 billion for FY24.

Although the analyst sees long-term growth prospects in Tractor Supply's business model, they note a more muted earnings year for the company.

Consequently, the analyst lowered EPS estimates to $10.20 (from $10.25) for FY24 and $11.40 ($11.45) for FY25.

Also Read: Tractor Supply Analysts Increase Their Forecasts After Upbeat Earnings

Also, Griffin projects the EBIT margin to be pressured in 2024, decreasing 30 bps Y/Y to 9.8% due to ramping up a new DC, incremental investments in Neighbor's club, normalized incentive compensation (10-15 bps of pressure), ongoing wage rate inflation (estimated at 3%-4% y/y), and fixed expense deleverage on comparables.

Nonetheless, given the current macro uncertainty, the analyst expects sales estimates to modestly increase in 2024 and projects an EBIT rate to recover in 2025 back to 10.1% (long-term target is 10.1%-10.6%).

Consequently, the analyst raised FY24 comp sales estimate to +0.5% (from -0.4%) on expected positive transaction counts. 

Price Action: TSCO shares are down 1.23% at $232.00 on the last check Friday.

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