Tractor Supply's Q3 May Face Headwinds Amid Decline In Major Discretionary Sales, Analyst Forecasts

Truist Securities analyst Scot Ciccarelli reiterated a Buy rating on Tractor Supply Company TSCO, lowering the price target to $235 from $257.

The Truist card data indicates a slightly softer 3Q than previously anticipated, and the analyst thinks that the "buyside bar" has already declined (the stock is down ~8% vs. a ~6% pullback in the market since its 2Q EPS report)

The company's Q3 comp/EPS forecast has been revised down to 1.0%/$2.30 from the previous 2.5%/$2.36 due to the Truist card data, which implies softer sales trends, the analyst adds.

Ciccarelli notes that modestly softer trends are attributed to a decline in big-ticket discretionary sales, moderating same SKU inflation, and potential weather challenges arising from extremely dry conditions.

The analyst lowered the EPS estimates for '23/'24 to $10.20/$11.15 from $10.25/$11.20.

While the company has some big-ticket discretionary exposure, its business remains highly needs-based for its core customers, the analyst notes. 

Thus, despite near-term pressures, the company's stacked trends remain fairly stable and, given its heavy needs-based demand structure.

Ciccarelli adds that pandemic-driven behavioral shifts, including a greater home-centric focus, migration away from dense/urban environments, and higher pet/livestock adoption rates, will continue to drive customers to the company's rural lifestyle-focused stores. 

In addition, Tractor Supply-specific initiatives, such as its remodeling program and Side Lot transformations, will continue to aid share gains.

Price Action: TSCO shares are trading lower by 0.54% to $204.90 on the last check Thursday.