On Thursday, Tractor Supply Company (NASDAQ:TSCO) received a downgrade from Evercore ISI, moving from an Outperform to an In Line rating with a maintained price target of $300.00. The firm pointed to the stock nearing its base case scenario and a less attractive risk/reward profile at its current valuation as reasons for the downgrade.
The rural lifestyle retailer's shares have risen approximately 40% year-to-date, driven by market multiples rather than earnings per share adjustments, which have remained unchanged since the year's start. This surge has pushed the company's valuation metrics, such as EV/EBITDA and forward P/E, near or at their ten-year highs, indicating a stretched valuation relative to historic ranges.
Evercore ISI noted that Tractor Supply's comparable sales growth over the past five years has been impressive, outpacing nearly all other retailers covered by the firm, except for Amazon (NASDAQ:AMZN). However, the firm anticipates margin pressures in the second half of 2024 due to diminishing transportation tailwinds and a less favorable product mix, particularly in the fourth quarter.
The analyst firm also highlighted that while Tractor Supply did not experience negative comparable sales post-pandemic, they do not foresee a V-shaped recovery for the company. Moreover, despite potential benefits from interest rate cuts, other retailers like Home Depot (NYSE:HD), Sherwin-Williams (NYSE:SHW), and Wayfair (NYSE:W) are expected to gain more from these economic shifts and the acceleration of existing home sales.
In conclusion, Evercore ISI maintains a price target of $300 based on a 26.7 times multiple of the firm's projected 2025 earnings per share of $11.25, which aligns with the consensus. However, with the stock trading at an all-time high and limited upside to the price target, the firm does not see a justification for an Outperform rating at this time. The firm remains open to revising its stance should transaction volume increase and commodity deflation headwinds decline.
In other recent news, Tractor Supply Company has seen a series of financial adjustments following their second quarter 2024 earnings report. The earnings per share (EPS) increased by 2.6% year-over-year to $3.93, slightly surpassing the FactSet consensus of $3.92. However, the company's comparable store sales recorded a 0.5% decrease. Notably, financial firms have adjusted their price targets for Tractor Supply; Telsey Advisory Group revised the retailer's shares target to $300 from $305, while JPMorgan reduced its target to $260, and Citi raised its target to $260.
In the wake of Hurricane Helene, Tractor Supply has maintained its Buy rating from Benchmark due to its crucial role in supplying essential products for storm recovery. The company's importance in disaster response has been emphasized, providing necessary recovery items such as generators, chainsaws, and pumps to affected areas.
In light of these recent developments, Tractor Supply has updated its full-year 2024 EPS guidance, narrowing the range to $10.00-$10.40 from the previous forecast of $9.85-$10.50. The company continues to expand its operations, launching 21 new stores and three Petsense locations. Its digital sales saw double-digit growth, and its Neighbor's Club loyalty program now boasts over 36 million members.
InvestingPro Insights
While Evercore ISI has downgraded Tractor Supply Company (NASDAQ:TSCO) due to valuation concerns, InvestingPro data provides additional context to the company's financial position. As of the last twelve months, TSCO has maintained a profitable status, aligning with analysts' predictions for continued profitability this year. This financial stability is further underscored by the company's ability to cover interest payments with its cash flows, suggesting a solid financial foundation despite operating with a moderate level of debt.
InvestingPro Tips highlight that TSCO has raised its dividend for 14 consecutive years and maintained payments for 15 years, demonstrating a commitment to shareholder returns that may appeal to income-focused investors. However, the stock's current trading near its 52-week high and high Price/Book multiple echo Evercore's concerns about valuation. The RSI suggesting overbought territory further supports the notion of a potentially stretched valuation.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for Tractor Supply Company, providing a deeper dive into the company's financial health and market position.
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