Tractor Supply Company Is A Buy On Post-Earnings Weakness Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) need to pay attention to Tractor Supply Company (NASDAQ: TSCO). While the two larger competitors are focusing on the more-urbanized and higher-density population...

Tractor Supply Is Dominating In Underserved Markets

Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) need to pay attention to Tractor Supply Company (NASDAQ: TSCO). While the two larger competitors are focusing on the more-urbanized and higher-density population zones Tractor Supply is focused on "Life out Here" and life out here is good, very good. The flight to the suburbs, the exodus from the cities, that was accelerated by the pandemic combined with CEO Hal Lawton's vision and produced a sustained round of growth that shows no signs of stopping. Not only is the company growing its comps in its current markets but it is also expanding its footprint at the same time. The results have been no less than staggering and have now resulted in a 77% increase to the dividend and an additional $2 billion in buybacks that we see driving this stock higher, much higher.

Tractor Supply Company Beats And Raises

Tractor Supply Company had a robust quarter, to say the least. The company brought in $3.32 billion in net revenue for a gain of 15.3% on top of last year's 31% gain and the revenue beat the Marketbeat.com consensus by 280 basis points. The gains are driven by a 12.7% increase in comps that was compounded by growth in both Tractor Supply Company and Petsense store counts. Internally, comps are driven by a 12.7% increase in ticket averages and a 2.4% increase in ticket counts. The company also noted that sales are underpinned by strength in all categories including everyday items and consumables. eCommerce, another pillar of the growth story, posted the 38th sequential quarter of double-digit growth.

Moving down to the income there was a small 83 basis point contraction in gross margin and about 200 basis points of higher SG&A expense but the overall impact was far less than expected. The company reported $1.93 in GAAP EPS for a gain of $0.29 versus last year and beat the consensus by $0.09. Looking forward, the company is expecting strength to continue and is forecasting 3% to 5% comp-store growth in addition to expansion plans. This should drive revenue of $13.6 billion at the low-end of the range compared to the $12.65 consensus and EPS will be similarly strong.

Tractor Supply Company Increases Capital Returns

Tractor Supply Company has been sowing the seeds of success for the last 2-3 years and those efforts are paying off. The company has been paying a very safe dividend and buying back stock and just made significant increases to both. The company upped the dividend to $0.92 quarterly or an annualized distribution yield of 1.70% compared to the 1.0% it previously yielded. This puts the payout ratio at 40% of the guidance at the low end of the range and we see future increases as well. The company has a rock-solid balance sheet and a growing business so there is no reason not to. As for the buybacks, the company upped its buyback plans by $2 billion which is worth about 8.25% of the market cap with shares trading near $215.50.

The Technical Outlook: Tractor Supply Company May Offer Cheaper Prices

Shares of Tractor Supply Company popped in the wake of the earnings report but price action is ultimately bearish. The market appears to be confirming resistance at the baseline of a Double-Top reversal pattern and this has bearish implications for share prices. In the near term, we see prices moving as low as $205 before support buying kicks in and maybe a deeper pullback if the $205 level does not hold up. Longer-term, we see this stock continuing its uptrend and setting new highs in the $250 to $270 range.