We maintain our long-term Outperform recommendation on Tractor Supply Co. (TSCO) as we anticipate it to perform well above the broader market. Tractor Supply is the largest operator of retail farm and ranch stores in the U.S., with a diverse portfolio of branded and private-label merchandise.
The company recently posted strong earnings in the second quarter of 2010 driven by higher sales, improved merchandise mix, prudent inventory management and effective expense control. Moreover, Tractor Supply’s unique market position, initiatives to boost margin and a debt-free balance sheet augur well for future operating performance.
Over the last five years, Tractor Supply’s shares have traded in a range of 12.0X to 33.7X trailing 12-month earnings. Our Outperform recommendation on the stock indicates that it should perform well above the market. Our target price of $82.00, 20.0X 2010 EPS, reflects this view.