Tractor Supply Faces Challenges With Post-Pandemic Sales Decline And Margin Pressures, BofA Downgrades Stock

BofA Securities analyst Jason Haas downgraded the shares of Tractor Supply Co TSCO from Neutral to Underperform and lowered the price target from $207 to $171.

During the pandemic, TSCO gained new customers and wallet share with existing customers as people pursued more rural activities including gardening/farming, says the analyst.

The analyst notes the farm and ranch industry is now seeing a post-pandemic reversion given sales decline across discretionary, seasonal, consumable, usable, and edible products.

As per the analyst, this trend could impact the margins as TSCO gets more promotional. The analyst continues to see feed price deflation hurting comps and EPS in 2024.

With the assumption that one third of TSCO’s revenue comes from animal and pet food, the analyst notes corn, soy, and chicken prices will become a strong indicator for the inflation component of TSCO’s comparable sales. These prices flipped negative earlier this year, which implies a headwind to TSCO’s comps starting in 1Q24.

According to the analyst, TSCO’s changes in its accounting policy will lead to reduced clarity in earnings.

The analyst has lowered FY24/25/26 EPS estimates by 3%/7%/7%, reflecting comp pressure from lower commodity prices and SG&A deleverage.

Price Action: TSCO shares are trading lower by 2.96% at $217.47 on the last check Friday.

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