Tractor Supply Co. is getting a major boost from its focus on the rural lifestyle, which has become more appealing to U.S. consumers during the coronavirus pandemic, analysts say.
Tractor Supply TSCO, +7.31% stock jumped 5.3% in Wednesday trading after the rural retailer pre-announced a blockbuster second quarter outlook, with sales growth of 24% to 29% expected, same-store sales growth of 20% to 25% forecast, and earnings per share outlook of $2.45 to $2.65.
The FactSet consensus is for sales of $2.85 billion, implying 21.1% growth, same-store sales growth of 19% and EPS of $2.32.
Tractor Supply also announced that it would be unveiling a revamped website and launching its first mobile app at the end of June.
And for employees, the company will extend the $2-per-hour bonus for frontline workers through June 27 with managers getting incremental $1,000 bonuses, put a permanent wage increase of at least $1 into effect starting June 28, and give salaried managers at various levels annual restricted stock units.
A new package for part-time workers that includes medical and dental benefits will also be offered.
Raymond James quotes Mastercard Inc.’s MA, -1.54% Chief Executive Ajay Banga, saying “rural is the new urban.” Analysts say the retailers merchandise taps into current U.S. trends including gardening, spending time outside and minimizing expenses.
“We believe rural markets are and will continue to reap the benefits of consumers moving/vacationing away from their more urban counterparts, which ideally fits the rural nature of Tractor Supply’s store base,” wrote analysts led by Matthew McClintock.
Raymond James rates Tractor Supply shares strong buy and moved their price target to $135 from $115.
“Tractor Supply was already a strong company with excellent fundamentals prior to the corona-crisis,” wrote Quo Vadis president John Zolidis. Quo Vadis rates Tractor Supply long.
“We believe it is reasonable to believe that secular shifts (less competition, more people moving to rural locations, superior economics in rural locations) together with new strategic initiatives (accelerated investment in digital) potentially reset Tractor Supply’s earnings power in a way not yet appreciated in consensus forecasts or the equity’s valuation.”
While some of the benefits working in Tractor Supply’s favor are temporary, like the stimulus checks consumers received, others are long-term positives.
“In general, rural economies and rural consumer psychologies have been less impacted by the corona-crisis than others,” Quo Vadis said. “We have heard this theme from several companies.”
Wells Fargo also thinks Tractor Supply is getting a boost from the lack of competition.
“In a category comprised of many sub-scale players, we believe Tractor Supply is increasingly advantaged, and clearly benefitting from robust category demand (lawn/garden, pet, etc.), omnichannel investments and its recently launched national ad campaign,” analysts led by Zachary Fadem wrote.
“t’s pleasing to see Tractor Supply capitalizing on today’s opportunity while also staying focused on long-term differentiation and sustainability of performance.”
Wells Fargo rates Tractor Supply stock overweight with a $130 price target, up from $105.
Wedbush analysts say in addition to all the aforementioned factors working in Tractor Supply’s favor, having consumers at home with time on their hands to work on projects is another. Lowe’s Cos. LOW, +2.65% also attributed time at home for DIY projects for its strong quarterly results.
Wedbush rates Lowe’s stock neutral but bumped up its price target to $120 from $95.
“The overriding takeaway from Tractor Supply’s 2Q update is that it will likely emerge from the current situation in a better position than it was in before,” wrote UBS analysts led by Michael Lasser.
UBS cites favorable weather and the movement of consumers out of urban areas among the variables helping the retailer. Analysts there rate Tractor Supply stock neutral with a $110 price target, up from $100.
“This pace of growth is similar to Lowe’s and these retailers share some common territories,” analysts said.
Tractor Supply’s stock has rallied 25.3% for the year to date while the S&P 500 index SPX, +0.68% is down 7.5% for the period.