TSCO Stock Study (10-12-23)

I recently did a stock study on Tractor Supply Co (TSCO) with a closing price of $204.31.

M* writes:

     > Tractor Supply is the largest operator of retail farm and ranch
     > stores in the United States. The company targets recreational
     > farmers and ranchers and has little exposure to commercial and
     > industrial farm operations. Currently, the company operates
     > 2,181 of its namesake banners in 49 states, along with 192
     > Petsense by Tractor Supply stores and 81 Orscheln Farm and
     > Home stores (to be converted to Tractor Supply banners). Stores
     > are generally concentrated in rural communities, as opposed
     > to urban and suburban areas. In fiscal 2022, revenue consisted
     > primarily of livestock and pet (50%), hardware, tools, and
     > truck (19%), and seasonal gift and toy (21%).

Over the past decade, this large-size company has grown sales and EPS at annualized rates of 11.6% and 17.2%, respectively. Lines are generally up, straight, and parallel without a single YOY decline. PTPM leads peer and industry averages, ranging from 8.6% in ’18 to 10.4% in ’15 with a last-5-year mean of 9.3%.

Also over the past decade, ROE leads peer and industry averages by increasing from 27.4% (’13) to 55.2% (’22) with a last-5-year mean of 43.0%. Debt-to-Capital is lower than peer and industry averages despite increasing from 0.1% (’13) to 67.6% (’22) for a last-5-year mean of 56.8%.

Quick Ratio is only 0.3, but Current Ratio is 1.6 and Interest Coverage (M*) is 35.4. M* gives an “Exemplary” rating for Capital Allocation, and Value Line rates the company A+ for Financial Strength.

With regard to sales growth:

• CNN Business projects 7.0% YOY and 6.8% per year for ’23 and ’22-’24, respectively (based on 29 analysts).
• YF projects YOY 4.6% and 5.7% for ’23 and ’24, respectively (29 analysts).
• Zacks projects YOY 4.5% and 5.9% for ’23 and ’24, respectively (11).
• Value Line projects 7.5% annualized growth from ’22-’27.
• CFRA projects 4.6% YOY and 6.5% per year for ’23 and ’22-’24, respectively.
• M* offers a 2-year ACE of 5.2% per year and projects 5-year annualized growth of 6.0% in its analyst note.

I am forecasting conservatively below the range at 4.0% per year.

With regard to EPS growth:

• CNN Business projects 7.5% YOY and 8.8% per year for ’23 and ’22-’24, respectively (based on 29 analysts), along with 5-year annualized growth of 10.0%.
• MarketWatch projects 7.3% and 8.0% per year for ’22-’24 and ’22-’25, respectively (33 analysts).
• Nasdaq.com projects 8.4% YOY and 8.6% per year for ’24 and ’23-’25 (16, 16, and 6 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 8.4%.
• YF projects YOY 5.8% and 8.5% for ’23 and ’24, respectively (31), along with 5-year annualized growth of 7.7%.
• Zacks projects YOY 5.3% and 8.4% for ’23 and ’24, respectively (16), along with 5-year annualized growth of 7.8%.
• Value Line projects 10.7% annualized growth from ’22-’27.
• CFRA projects 7.9% YOY and 8.6% per year for ’23 and ’22-’24, respectively, along with a 3-year CAGR of 15.0%.
• M* projects long-term annualized growth of 9.8%.

I am forecasting below the range of six long-term estimates (mean 9.1%). I will use ’22 EPS of $9.71/share as the initial value rather than 2023 Q2 EPS of $10.01 (annualized).

My Forecast High P/E is 21.0. Over the past decade, high P/E decreases from 33.7 (’13) to 24.9 (’22) with a low value of 22.7 in ’18 and last-5-year mean of 24.9. The last-5-year-mean average P/E is 19.8. I am forecasting below the 10-year range.

My Forecast Low P/E is 16.0. Over the past decade, low P/E goes from 19.1 (’13) to 17.1 (’22) with a last-5-year mean of 14.8. I am forecasting near the bottom of the range [only ’20 (10.0) and ’18 (13.5) are lower].

My Low Stock Price Forecast (LSPF) of $155.40 is default based on $9.71/share. This is 23.9% less than the previous closing price and 17.0% less than the 52-week low.

Over the past decade, Payout Ratio increases from 21.1% (’13) to 37.9% (’22) with a last-5-year mean of 28.5%. I am forecasting just below the range at 21.0%.

These inputs land TSCO in the HOLD zone with a U/D ratio of 1.7. Total Annualized Return (TAR) is 8.0%.

PAR (using Forecast Average—not High—P/E) of 5.4% is less than I seek in a large-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 316 studies (my study and 175 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 7.5%, 9.3%, 24.3, 14.8, and 27.9%. I am lower on everything but Forecast Low P/E (16.0). Value Line’s projected average annual P/E of 22.0 is higher than MS (19.6) and higher than mine (18.5).

MS high / low EPS are $15.47 / $9.56 versus my $13.62 / $9.71 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is $16.15. I am lowest of the three.

MS LSPF of $150.20 implies a Forecast Low P/E of 15.7: less than the above-stated 14.8. MS LSPF is 6.2% greater than the default $9.56/share * 14.8 = $141.49, which results in more aggressive zoning. MS LSPF is still 3.4% less than mine.

My TAR (over 15.0% preferred) is much less than the 13.2% from MS. MOS seems robust in the current study.

I track a few different [usually conflicting] valuation metrics. PEG is 2.6 and 2.7 per Zacks and my projected P/E, respectively: both overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is fair at 1.03. Kim Butcher’s “quick and dirty DCF” prices the stock at 15.0 * [$20.80 – ($5.50 + $0.00)] = $229.50, which suggests the stock to be 11.0% undervalued [NOTE: Value Line does not include “Capital Expenditures” in this statistical matrix. Looking at the 2022 10-K, I calculate this to be $773.4M / 112.1M shares = $6.90/share for ’22. Plugging this in for the $0.00 above cuts the stock valuation drastically to $126.00. Hopefully I have not overlooked anything as I’ve never done this calculation before].

TSCO is a BUY under $188. With a forecast high price at $286, TAR should meet my 15% criterion around $143/share.