Argus Research sets $300 target for Tractor Supply: Is it time to buy?

Argus Research has set a bullish $300 price target for Tractor Supply Company (NASDAQ: TSCO), suggesting a potential upside of 14.4% from its current price of $262.20.

This projection exceeds the stock’s all-time high of $289.98, achieved on June 18, 2024.

Argus analysts, including Christopher Graja, believe this target is achievable based on a projected five-year earnings growth rate of 11%.

The optimistic outlook is supported by the company’s expansion plans and its strategic use of a dividend discount model to forecast steady growth.

Tractor Supply surpasses earnings expectations

In its second-quarter 2024 report, Tractor Supply surpassed earnings expectations but fell short on revenue.

The company reported earnings per share (EPS) of $3.93, slightly exceeding estimates by one cent.

Revenue increased by 1.5% year-over-year to $4.25 billion, missing analyst expectations by $30 million.

The company adjusted its full-year guidance, narrowing its sales outlook to between $14.8 billion and $15.0 billion, with projected net income ranging from $1.08 billion to $1.12 billion.

Comparable store sales declined by 0.5% in the second quarter, contrasting with a 2.5% increase in the same period last year.

This drop was attributed to reduced transaction counts, though the average ticket size rose slightly.

New store openings helped offset this decline, contributing to overall sales growth.

Gross profit increased by 2.7% to $1.56 billion, with the gross margin improving to 36.6% from 36.2% in the prior year.

This improvement was driven by lower transportation costs and effective product cost management.

However, selling, general, and administrative (SG&A) expenses rose by 4.1%, reflecting growth investments and the opening of a new distribution center.

Operating income remained stable, with a modest increase from the previous year.

Tractor Supply aims to expand to 3,000 stores in the US

Tractor Supply’s growth strategy is a key driver for the company.

During the second quarter, the company opened 21 new Tractor Supply stores and three Petsense stores, bringing the total number of locations to 2,459.

The company aims to expand to 3,000 stores in the US, providing significant growth potential.

Additionally, a new distribution center in Maumelle, Arkansas, is expected to enhance supply chain efficiency and reduce costs over time.

The company’s financial health is strong, highlighted by a high-interest coverage ratio of 35.1 in the first half of 2024.

This robust financial position enables Tractor Supply to manage its debt effectively and maintain a stable credit rating.

Tractor Supply declares quarterly dividend of $1.10 per share

Tractor Supply’s current P/E ratio of 25.29 is slightly above its 15-year average of 22.9, but analysts consider the stock reasonably priced given its growth prospects.

The company recently declared a quarterly dividend of $1.10 per share, offering a forward yield of 1.68%.

While this yield is lower than the consumer discretionary sector average, Tractor Supply’s 12-year dividend growth streak and a compound annual growth rate of 22.7% over the past decade make it attractive to long-term investors.

Analysts forecast an annual dividend growth rate of 8.4%, supported by a low payout ratio and healthy earnings.

Despite the positive outlook, potential risks remain.

The company’s growth hinges on the successful execution of its expansion plans and maintaining its brand reputation.

Operational challenges or adverse economic conditions could impact its growth trajectory and sales targets.

A thorough analysis of technical indicators is necessary to evaluate whether Tractor Supply is a compelling buy at this juncture.

Long-term bullish, short-term bearish

Shares of Tractor supply remained rangebound between $180 and $240 for more than two years beginning in 2022. However, it broke above this range earlier this year in February and made a new all-time high at $290.27 in June.

Source: TradingView

Although the stock has retraced quite a bit since making that high, it still remains strong on the long-term charts. Hence, investors who are bullish on the stock can buy it at current levels or continue holding it as long as it doesn’t fall below its recent swing low at $247.51.

Traders who are bearish on the stock can also capitalize on the short-term weakness by shorting the stock closer to $270 with a stop loss at $283.3. If it goes above that level, that will break the lower high and lower low pattern and indicate the start of a fresh uptrend.