COMPANY DESCRIPTION

Tractor Supply is an operator of retail farm and ranch stores in the United States. Co. is engaged in supplying the lifestyle needs of recreational farmers and ranchers, as well as tradesmen and small businesses. Co. provides a selection of merchandise including: equine, livestock, pet and small animal products, including items necessary for their health, care, growth and containment; hardware, truck, towing and tool products; seasonal products, including lawn and garden items, power equipment, gifts and toys; work/recreational clothing and footwear; and maintenance products for agricultural and rural use. As of Dec 28, 2013, Co. operated 1,276 retail farm and ranch stores in 48 states.

 

ECONOMIC MOAT

Tractor Supply’s moat comes from  the brand and product mix have built around a loyal following of recreational farmers, ranchers, and those participating in the rural lifestyle.  The niche product offering place TSCO in a unique position insulated from competitors that focus on one segment of the market. Tractor Supply’s breadth across categories (equine, livestock, pet and small animal products; hardware, truck, towing and tool products; seasonal products; work/recreational clothing and footwear; and maintenance products) provides a one-stop solution (and destination) for those looking to fill multiple needs across outdoor categories.  Tractor Supply is one of few retailers (like HD and LOW) that is truly authentic and creates trust with its target market.  The brand is believable and likeable which play well with customer loyalty. 

 

OUTLOOK

Tractor Supply is helped by core customers purchasing everyday basic needs. Tractor's store count target is now 2,500 (previously 2,100). That's nearly 80% higher than its recently opened 1,400th unit. Management plans to open 110-115 stores in 2015, and subsequently maintain a 120 annual ribbon-cutting pace. Company studies reveal that its customer base has grown, reflecting the consumers' aspirational lifestyles. The company will share more of its cash with investors. Tractor's dividend payout target is 20%-30% of earnings. That suggests annual dividend growth around 15%-20%. The company can repurchase 2%-3% of shares annually.  Tractor Supply has a strong growth record and share prices are at fair value.

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STRENGTHS

  • Diversified product mix with focus on fast moving consumables

  • Focused approach towards serving its target market

  • Improving revenue and profitability 

WEAKNESSES

  • Geographic concentration 

THREATS

  • Increasing labor cost in the US

  • Laws and regulations 

OPPORTUNITIES

  • Opening of new stores to increase the geographic footprint
    Strengthening distribution network

  • Growing market share of private label goods in the US

  • Growing customer preference to shop online 

The above report is for information purposes only, and is not a solicitation or offer to buy or sell any securities. Past performance is no guarantee of future performance. Neither diversification nor asset allocation ensures a profit or guarantees against loss. Before investing, investors should consider their risk tolerance, investment objectives, time horizon, available capital, and charges and expenses.  

 

The information presented in this report has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guranteed. All material is subject to change without notice. The views and opinions expressed are those of Focused Stock Research and/or WALT ST Investment Management, Ltd. and in no way reflect the views and opinions of Investment Consultants nor their Broker Dealers.

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