Tractor Supply Company Shares Could be Headed to New Highs

Key Points

• Tractor Supply is supported by a string of analysts' upgrades and price target increases. 
• The company is expected to report a record quarter for Q4. 
• The dividend yield and outlook for growth are superior to competitors Walmart and Target. 

Tractor Supply Company NYSE: TSCO is getting a string of upgrades and price target increases ahead of its Q4 release, and it is no surprise. The Life Out Here strategy by CEO Hal Lawton is working. His move to improve merchandising, digital sales channels, product mix and customer satisfaction is paying off in spades. It has resulted in 5 major analyst commentaries since the 1st of the year, which is on top of the upgrades and price target increase the company received in December.

The latest comes from D.A. Davidson, which boosted its target to $219. This target is a bit below the $239 Marketbeat.com consensus but above the current price action, and the consensus is trending higher. 

As it is now, the stock is pegged at a Moderate Buy by Marketbeat.com analyst tracking tools. However, the 5 most recent consensus is a very firm Buy leaning toward Strong Buy with a price target above the consensus.

Assuming the Q4 results will be as strong as expected, this trend should continue into the spring. In the eyes of Wells Fargo, which reinstated coverage in December at Outperform, Tractor Supply Company’s product mix should insulate it from consumer weakness while it gains market share in the post-pandemic world. 

Tractor Supply Company Set To Report Record Q4 

The analysts are expecting an excellent quarter from Tractor Supply Company. The consensus targets for revenue and earnings expect solid growth on a YOY and sequential basis and results to set new records. The takeaway is that Tractor Supply Company tends to beat its consensus estimates for both metrics about 90% of the time, and when it doesn’t, the top or bottom-line results are better than expected.

That is important in its own right but also plays into the dividend health and outlook for capital returns which is very healthy. 

The stock trades at a fairly high 22X multiple compared to the broad market, but it pays a handsome dividend. The yield is running near 1.75%, which isn’t all that hot but is above the broad market average. The truly attractive details are the payout ratio, about 35%, and the growth trajectory.

The company has been increasing the payout for the last 12 consecutive years with a 28% 5-year CAGR, suggesting aggressive increases could still be forthcoming. In regard to the balance sheet, the company is net-debt, but leverage is uber low, and cash flow is strong, so there are no red flags to be found.

Walmart NYSE: WMT, on the other hand, is trading at a slightly elevated multiple and pays a slightly lower yield, while Target NYSE: TGT pays a better yield but trades at a much higher multiple and with a less-robust outlook for distribution growth. 

The Institutions Like “Life Out Here”

The institutional activity has been somewhat mixed on a quarter-to-quarter basis over the past year or so, but the takeaways are bullish. Net activity has been bullish for the last year, and the most recent quarter was very bullish. Institutional activity swung firmly in favor of the bears and netted just over $1 billion in shares.

That is worth about 4.5% of the current market and has their total holdings up to 85% and growing. The 3 largest holders of the stock are Vanguard, BlackRock Group and SSgA Funds Management, which own more than 20% of the company collectively. 

The Technical Outlook: Firm Support In the Middle of the TSCO Range 

The price action in Tractor Supply Company has been mixed over the past year and has the stock in a trading range. The latest action has the market pulling back to support at the mid-point of the range, consistent with the 150-day moving average.

Assuming this level holds support, the market could easily increase to $239, consistent with the all-time highs and the analyst's target. If the results are good, this stock will probably increase to another new high. If not, Tractor Supply could remain range bound until later in the year.