Goldman Sachs Upgrades Tractor Supply On Favorable Macro Trends, Business Drivers

Tractor Supply Company TSCO is well-positioned to take advantage of two notable macro tailwinds and three company-specific initiatives, according to Goldman Sachs.

The Analyst

Goldman Sachs' Matthew Fassler upgraded Tractor Supply from Neutral to Buy with a price target lifted from $72 to $79.

The Thesis

Tractor Supply's proposition of offering consumers a unique combination of consumables, hardware, seasonal goods and agricultural products remains strong, Fassler said in a Monday note. (See the analyst's track record here.) 

While the company is not immune to pressures in the broader retail group, Tractor Supply's multiple tailwinds outweigh the headwinds, the analyst said. 

Recent moves higher in energy prices bode well for the company given its heavy exposure to energy-oriented markets, Fassler said.

The retailer's sales trends are exposed to inflation dynamics, according to Goldman Sachs. 

"We have typically modeled SSS alongside a tailored basket of several commodities, namely crude, steel, corn, soybean and wheat," Fassler said. "The direction of this basket is favorable for TSCO's inflation outlook, which should aid sales dynamics." 

Tractor Supply stands to see favorable results from three company-specific business drivers, Fassler said:

• A loyalty program put in place in April 2017 has resulted in a fourfold membership increase and is likely to continue expanding.
• Management is in the process of expanding price zones to "be more nimble and provide greater flexibility."
• The company is ramping its private label credit card, which could help sell bigger-ticket items like outdoor power equipment.

Price Action

Shares of Tractor Supply Company were up 2.49 percent at the close Monday at $59.77.

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