Tractor Supply Upgraded by RBC to Outperform, Price Target Raised to $105

Tractor Supply (TSCO) received an investment-rating upgrade to outperform from sector perform from RBC Capital Markets following the rural-lifestyle retail company’s Thursday report of better-than-expected fiscal Q3 results and increased guidance for the fiscal year.

RBC also raised its price target on Tractor Supply’s shares to $105 each from $87. The shares rose 5.8% in Thursday’s session to close at $89.07 and climbed another 0.5% in recent Friday pre-market trading to $89.50.

In a note to clients, RBC said it previously had questions over the sustainability of Tractor Supply’s comparable-store sales (comps) as well as its 2019 margin trajectory, but “with two straight quarters of 5%+ comp/3.5%+ ticket growth, solid comp trends should continue in the near/mid-term, and confidence seems to be building on the margin front for 2019. As a result, we are upgrading to outperform.”

The firm highlighted that growth in average transactions appeared to be the primary driver to the comparable-store sales upside in each of the last two quarters, adding “we believe there is more upside/sustainability to the company’s average ticket growth than we previously anticipated.”

Thursday morning, Tractor Supply said for its fiscal Q3 ended Sept. 29, its earnings per share rose to $0.95 from $0.72 a year earlier, surpassing analysts’ mean estimate according to Capital IQ of $0.87. Net sales climbed to $1.88 billion from $1.72 billion a year earlier, topping analysts’ mean estimate of $1.83 billion. Comparable-store sales jumped 5.1%, more than double the 2.1% increase expected by analysts on average.

For the fiscal year, Tractor Supply said it now expects EPS of $4.23 to $4.27, up from its prior guidance for $4.10 to $4.20. It now sees the year’s net sales at $7.84 billion to $7.87 billion, up from its prior forecast for $7.77 billion to $7.80 billion, as the company also increased its estimate for the year’s comparable-store sales growth to 4.0% to 4.5%, up from its prior guidance for growth of 3.0% to 3.5%.