Will Tractor Supply Company Continue To Bear Fruit?

Key Points

• The analysts are trimming their price targets for Tractor Supply Company.
• Institutional activity may cap gains in the near to mid-term. 
• Shares of TSCO yield 1.85% and come with a healthy outlook for distribution increases. 

Whether they’ve become less optimistic or more realistic about the next 12 months the analysts covering Tractor Supply Company (NASDAQ: TSCO) just trimmed their price targets. The group, Marketbeat.com is tracking 17 analysts covering Tractor Supply Company, issued at least 7 price target reductions in the wake of the Q3 report, and more may be on the way. Taken at face value, this is not good news for the company but the underlying fundamentals suggest Tractor Supply Company is still in great shape. Not only did the company beat the bottom line consensus estimates for Q3 but it issued an increase in guidance that should have had the analyst raising targets and not lowering them. 

Analysts And Institutions May Cap Gains

As it is, the analyst's consensus is pegged at a Moderate Buy and that rating has held steady for the last 12 months at least. Many of the ratings tied to these new price targets are Overweight or equivalent and the most recent rating change, from Neutral to Buy, came in June. The price target reductions are another matter, but even these are not a worry for long-term holders or prospective buyers of the stock. The price target reductions have the consensus rating down slightly from the previous quarter but trending within a 5-dollar-range over the last two quarters and up more than 8% over the last year. The key takeaway is the $234.79 consensus price target is about 19% above the current price action and well above the recent trading range. In fact, a move up to the consensus level would put the stock near all-time highs. 

On the Institutional side of the coin, the institutions own about 83% of the stock and have been net buyers over the past year but their activity is very mixed. The net of activity has flip-flopped from bullish to bearish on a quarter-to-quarter basis for the last 5 quarters and is instrumental in keeping the stock range bound. The activity in the first weeks of Q4 is net-bearish as well, albeit very light in relation to previous quarters, but the end-of-quarter is still a long way off. If the Q3 results aren’t enough to get them back into buy mode hopes of higher prices may already be dashed. 

Tractor Supply Beats And Raises Guidance For Q4 2022 

Tractor Supply Company issued a mixed report in which top-line results missed the mark but the bottom line did not. The top-line $3.27 billion in revenue is up 8.3% versus last year but missed by a slim 30 basis points which are easy to overlook. The gain in revenue was driven by a 5.7% comp store increase that was bolstered by new stores. The comp figure was in turn driven by a 7.0% increase in ticket average offset by a 1.3% decline in ticket count. Moving on to the earnings, the company was able to control cost increases and produce a margin that was better than expected. The gross margin declined by 32 bps on mix and growth efforts while SG&A increased by 16 bps on growth efforts and higher wages. 

The takeaway here is that GAAP earnings of $2.00 beat the consensus by $0.02 and the guidance was increased. The company is looking for FY EPS in the range of $9.55 to $9.63 versus the prior high-end of $9.60 and the consensus of $9.22. This is enough to ensure the 1.85% dividend and its outlook for growth remain intact. 

The Technical Outlook: Tractor Supply Company Confirms Support 

The price action in Tractor  Supply Company has been mixed the last few quarters and that was true going into the Q3 report. Price action plunged to support ahead of the report and then confirmed support at the $192-$193 level in the wake of it. Assuming the market follows through on this signal, investors might expect to see this stock drift upward within its range in the near term. If the market can get above $205 it could go to $215 and then $237. If not, Tractor Supply Company may be stuck in the weeds down near $200.