Company Profile (excerpt from Reuters): Tractor Supply Company, incorporated on December 2, 1982, is an operator of rural lifestyle retail stores in the United States. The Company is focused on supplying the needs of recreational farmers and ranchers and others, as well as tradesmen and small businesses. It is engaged in the retail sale of products that support the rural lifestyle. The Company operates retail stores under the names Tractor Supply Company, Del’s Feed & Farm Supply and Petsense, and operates Websites under the names TractorSupply.com and Petsense.com. Its stores are located primarily in towns outlying metropolitan markets and in rural communities. As of December 31, 2016, it operated 1,738 retail stores in 49 states (1,595 Tractor Supply and Del’s retail stores and 143 Petsense retail stores). Its Tractor Supply stores range in size from 15,000 to 20,000 square feet of inside selling space, along with additional outside selling space and its Petsense stores have approximately 5,500 square feet of inside selling space.
Downloadable PDF version of this valuation:
ModernGraham Valuation of TSCO – February 2019
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $11,690,451,950 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.91 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | 170.12% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 23.97 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 7.55 | Fail | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 1.91 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.45 | Pass | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $3.99 |
| MG Growth Estimate | 8.69% |
| MG Value | $103.34 |
| Opinion | Fairly Valued |
| MG Grade | C+ |
| MG Value based on 3% Growth | $57.88 |
| MG Value based on 0% Growth | $33.93 |
| Market Implied Growth Rate | 7.74% |
| Current Price | $95.69 |
| % of Intrinsic Value | 92.60% |
Tractor Supply Company is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.53 in 2015 to an estimated $3.99 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 7.74% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.
At the time of valuation, further research into Tractor Supply Company revealed the company was trading above its Graham Number of $36.55. The company pays a dividend of $1.2 per share, for a yield of 1.3% Its PEmg (price over earnings per share – ModernGraham) was 23.97, which was below the industry average of 27.33, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $2.2.
Tractor Supply Company receives an average overall rating in the ModernGraham grading system, scoring a C+.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | $2.20 |
| Graham Number | $36.55 |
| PEmg | 23.97 |
| Current Ratio | 1.91 |
| PB Ratio | 7.55 |
| Current Dividend | $1.20 |
| Dividend Yield | 1.25% |
| Number of Consecutive Years of Dividend Growth | 9 |
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| ModernGraham tagged articles | Morningstar |
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| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 12/1/2018 |
| Total Current Assets | $1,794,399,000 |
| Total Current Liabilities | $938,107,000 |
| Long-Term Debt | $381,100,000 |
| Total Assets | $3,085,262,000 |
| Intangible Assets | $124,492,000 |
| Total Liabilities | $1,523,442,000 |
| Shares Outstanding (Diluted Average) | 123,172,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $4.64 |
| Dec2018 | $4.31 |
| Dec2017 | $3.30 |
| Dec2016 | $3.27 |
| Dec2015 | $3.00 |
| Dec2014 | $2.66 |
| Dec2013 | $2.32 |
| Dec2012 | $1.90 |
| Dec2011 | $1.51 |
| Dec2010 | $1.13 |
| Dec2009 | $0.82 |
| Dec2008 | $0.55 |
| Dec2007 | $0.60 |
| Dec2006 | $0.56 |
| Dec2005 | $0.52 |
| Dec2004 | $0.39 |
| Dec2003 | $0.35 |
| Dec2002 | $0.12 |
| Dec2001 | $0.18 |
| Dec2000 | $0.12 |
| Dec1999 | $0.13 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $3.99 |
| Dec2018 | $3.55 |
| Dec2017 | $3.08 |
| Dec2016 | $2.86 |
| Dec2015 | $2.53 |
| Dec2014 | $2.16 |
| Dec2013 | $1.79 |
| Dec2012 | $1.41 |
| Dec2011 | $1.08 |
| Dec2010 | $0.82 |
| Dec2009 | $0.65 |
| Dec2008 | $0.55 |
| Dec2007 | $0.53 |
| Dec2006 | $0.46 |
| Dec2005 | $0.38 |
| Dec2004 | $0.28 |
| Dec2003 | $0.21 |
Recommended Reading:
Other ModernGraham posts about the company
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Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
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