Tractor Supply Company (TSCO), mcap=$21.5bn, price $187 vs $237

(Short) Pitch: COVID beneficiary trading at peak multiple of peak earnings. Large-cap farming supplies company caring for ‘recreational farmers’ and homes with gardens. Recent growth in revenues and elevated margins were driven by stay-at-home and deurbanization trends as well as government stimulus checks spent on big-ticket items – all unsustainable going fwd and expected to mean revert. New store growth close to saturation point. Upside scenario of sustained elevated sales and margins already priced in, creating an asymmetric short.

Valuation: TSCO currently trades at 22x PE assuming $10 EPS for 2022 (vs $8.61 for 2021 and $4.68 for 2019). A more reasonable $8 EPS for 2022 and 19x multiple (in line with historical) results in $152 target for the base case. Downside case with $100/share target.

Exp. gain: 58% to $99/share in the downside case and 36% to $152/share in the base case.

Full TSCO write-up (free guest account required):

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