Enjoy Slow, Steady Growth With Tractor Supply Company
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Tractor Supply Company (NASDAQ:TSCO) will report earnings on April 22 before the market opens. The consensus among analysts is for earnings per share of around 96 cents on revenue of $2.43 billion. This would be a lower number from the company’s fourth-quarter 2020 earnings report.
However, TSCO stock has been the subject of some recent price upgrades and that may be because of information the company has released prior to its earnings announcement. Specifically, the company is reporting same store sales growth of 27%, a key metric for any retail chain.
This reflects that demand among the company’s target audience remains strong. And within that number is a doubling of e-commerce sales. It may sound like a broken record by now, but retailers that Ahave a strong e-commerce presence will be the ones that thrive in a post-pandemic market.
Growth Through Acquisition
Weighing on earnings in the short term may be the company’s acquisition of Orschein Farm and Home. Orschein has been a regional competitor of TSCO. And according to Wedgewood Partners, this may only be the beginning of a new acquisition spree for the company.
I say new because Tractor Supply is no stranger to acquisitions. As far back as 2001 it acquired the bankrupt chain Quality Stores which has become an unquestioned success. The company’s 2016 acquisition of pet supply retailer, Petsense has not gone as well. In the fourth quarter of 2020, Tractor Supply posted $74.1 million in tax impairment charges from its Petsense business.
However, with the pet sector being one of the hottest sectors in 2021, I wouldn’t count out a recovery in 2021. In fact, management’s outlook for the Petsense business should be one of the items that investors should pay attention to in the company’s report.
The Bull Has Slowed Down, Not Stopped
After delivering a strong third-quarter earnings in 2020, TSCO stock dropped nearly 6%. This was in late October and I suspect that investors were beginning to do some reallocation with the idea that home improvement stocks would be falling out of favor.
At the time it made some sense. We were weeks away from the presidential election. At the time, we weren’t hearing much about a second wave of the novel coronavirus. However we were starting to hear that vaccines were on the horizon.
What a difference six months makes. If you had held onto your TSCO stock after that dip, you would be sitting on a 31% gain.
Nevertheless, it’s fair to ask if the bull run on TSCO stock is over. That depends on how you feel about the housing market which is showing no signs of cooling off.
Could Commodity Prices Rain on the Parade?
The company is less affected by rising commodity prices of agricultural products such as corn and wheat. Tractor Supply’s target audience is the small and hobby farmer. The same can’t be said for lumber prices which have soared during the pandemic. And it will take some time for supply to keep up with the demand that exists.
However, while this points to a possibility of slower growth, there’s no reason to believe that the company will not continue to grow.
Slow and Steady Often Wins
Analysts are forecasting EPS growth of $6.60 for 2021. That would be a slight increase from the $6.21 reported in 2020. But don’t forget, Tractor Supply is also a great dividend stock. In fact, the company just made it 10 consecutive years of dividend increases.
That may not seem sexy. But not every stock in your portfolio has to be a home run. In most cases, collecting a bunch of stocks that will deliver solid singles and doubles will do just fine. And that’s what you have in Tractor Supply Company. A slow, steady winner that will reward you with some growth now, and a dividend throughout the year.
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