Tractor Supply Company | Deep Dive Stock Analysis

Mickey082024
06-16

$Tractor Supply(TSCO)$

Hey everyone, and welcome back. Today we’re going to be analyzing Tractor Supply Company—ticker TSCO.

Earnings Overview – Tractor Supply Company (TSCO)

Let’s take a closer look at Tractor Supply’s earnings trends, growth consistency, and what the next few years might hold.

10-Year EPS Growth (2014–2024)

  • Adjusted EPS has grown from around $2.50 in 2014 to an estimated $10.00–$10.20 in 2024.

  • That represents a compound annual growth rate (CAGR) of roughly 14%, well above the S&P 500 average.

  • However, a big portion of this came from:

    COVID-era demand tailwinds

    Aggressive share buybacks, which boosted per-share metrics

    Tax reform in 2018, which added a one-time boost to net margins

Earnings Quality

  • Operating margins have expanded from ~8% a decade ago to over 10% in recent years, showing improved cost management and operating leverage.

  • Free cash flow has closely tracked net income, indicating high earnings quality with no major red flags from accruals or capex spikes.

  • ROIC (Return on Invested Capital) has consistently been in the 25%+ range, a very strong number for a retailer. This indicates excellent capital efficiency and competitive advantage.

Recent Performance (2023–2024)

  • 2023 EPS growth was a modest +4%, a significant slowdown from prior years.

  • 2024 guidance calls for flat to slightly positive EPS growth, roughly 0–2%.

    Management cited weaker discretionary spending, weather impacts, and inflation-sensitive categories as primary headwinds.

  • Gross margins remain relatively strong, but SG&A expenses are creeping up, reducing operating leverage.

Forward Estimates

  • Analysts currently project:

    2025 EPS: $10.75–$11.00 → 5–8% growth

    2026 EPS: $11.60–$12.00 → 7–9% growth

  • This implies a return to high-single-digit EPS growth, but well below the 12–15% pace investors had gotten used to pre-2022.

  • Buybacks are still ongoing and will likely continue to support per-share growth, but the underlying earnings engine is slowing.

Historical Performance & Earnings Resilience

Let’s get into Tractor Supply. This company has been on my long-term watchlist for a while, and today felt like the right time to dive in—especially since I actually own the stock. I bought in quite a while ago and, as we’ll get into, it turned out to be a really solid entry point.

Let’s start by reviewing historical earnings, using Graphs to guide us. First thing I like to do is remove the dividend layer, so we can focus strictly on core operating performance. Looking back, particularly to the Great Recession, we can see that earnings per share only declined about 9% during that period. That’s pretty modest given the broader economic turmoil at the time. For context, the overall market dropped about 60% from peak to trough, and many companies saw double-digit earnings declines—some permanently. So from a cyclicality standpoint, Tractor Supply is relatively stable.

On the stock price side, TSCO peaked early along with the housing market and bottomed early in 2008, falling roughly in line with the market. Again, not dramatically worse than average. So when I see this kind of earnings resilience and moderate price volatility, it tells me I can use a fundamental earnings-based valuation framework, as opposed to something more asset- or macro-based, which I’d use for highly cyclical companies.

The Post-COVID Earnings Boom & Stability

Fast forward to the last 10 years: Tractor Supply has seen a consistent upward trajectory in earnings, with a few notable acceleration points. There were two big tailwinds in recent years:

  1. 2018 tax reform, which boosted corporate earnings across the board.

  2. COVID lockdowns, during which TSCO benefited from a strong mobile presence and the “essential retail” designation. Their app worked well, and their physical footprint served rural and semi-rural customers who still needed supplies—animal feed, tools, hardware—without venturing far from home.

Unlike many retailers that saw a temporary COVID bump only to normalize lower, Tractor Supply actually managed to hold on to much of those gains, which is impressive. A lot of businesses saw earnings revert to their long-term mean, but these guys were able to maintain that elevated plateau. That tells us there may have been a genuine expansion in market share or efficiency, not just a temporary windfall.

My Buy & Hold Experience

Now, I was fortunate enough to bottom-tick this one almost perfectly. My purchase date was March 16th—right around the 2020 COVID crash lows. At the time, the stock was trading somewhere around $14 to $15/share, and it has since run up over 300% at its peak.

I originally thought of it as a long-term buy-and-hold position, and for a while, I didn't pay much attention to it beyond my routine portfolio reviews. But recently, I sold half of my position. Why? A few reasons:

  1. Valuation concerns—the PE had climbed to around 25.

  2. Earnings growth slowed—2023 came in at just 4%, and 2024 is forecasted at only about 1%, basically flat when adjusted for inflation.

  3. Macroeconomic indicators—We had slightly negative GDP growth last quarter, suggesting the economy may be slowing. That kind of environment usually isn’t great for retail.

  4. Tariff risks—TSCO is not a heavy importer like a tech hardware company, but tariffs could still add friction to margins. Not a dealbreaker, but another headwind in a business that’s already slowing down.

So while I’m still holding the other half of my position for now, I’m watching closely for any signs of more permanent structural problems. If those start to show up, I may exit the rest.

Valuation & Payback Time Analysis

Now let's do a valuation analysis from a fundamental, owner-operator perspective. The question I like to ask is:

"If I bought the entire business—including its debt—how long would it take to earn back my purchase price from the company's future earnings?"

This is the classic payback period approach. We include debt by looking at the total enterprise value (TEV), which is around 24% higher than market cap in TSCO’s case. At the time of this analysis, I’m treating the effective “price” as $61/share, to include the full TEV.

Assumptions:

  • Earnings yield: About 3.4%, which is the inverse of the PE ratio.

  • Earnings growth rate: I’m estimating 9.37% annually.

    FastGraphs shows 13.24% historical EPS growth, but that includes buybacks.

    I strip those out because if you own the business, you get the profits—you can use them for buybacks, dividends, or anything else, but they aren’t extra.

So we model the earnings starting at $3.72 per $100 invested, growing at 9.37% annually. The question is: how long would it take to accumulate $100 in cumulative earnings?

The Answer: About 15 years

That’s longer than I typically like to see. My target buy zone is usually a 10-year payback or better, which gives me a margin of safety and higher long-term compound potential. At 15 years, the stock starts to look like a hold or sell, especially in a market where cash yields ~4% risk-free.

Let’s illustrate this further:

  • 10-year payback means you could potentially double your investment every decade from pure earnings.

  • At 15 years, it takes that long just to double once. Over 30 years, you'd have $400 from a $100 investment, versus $800 under the 10-year model.

  • That’s a 50% difference in long-term wealth creation.

Fair Value & Buy Price

So what would be a more attractive price?

Let’s reverse-engineer the payback time:

  • At around $28/share, we’d hit that 10-year payback target.

  • That’s roughly a 50% decline from today’s price.

  • Somewhere around $36–$38/share would be closer to fair value (~12–13 year payback range), assuming my growth estimates hold.

This doesn’t mean TSCO is a bad company—it’s not. It’s stable, resilient, and well-managed. But at current prices, the future return potential just doesn’t justify fresh capital being put to work here, unless you believe they can re-accelerate growth significantly.

Final Thoughts

So to summarize:

  • Tractor Supply is a strong, defensive business with a history of steady earnings growth.

  • It weathered the Great Recession and COVID periods better than many peers.

  • But we’re now entering a slower growth phase, with macro risks and valuation stretched.

  • At today’s price, the 15-year payback period makes it look more like a hold or trim than a buy.

  • Fair value is probably 25–30% lower, and my ideal buy range would be closer to $28/share for a true margin of safety.

If you're already a shareholder like me, it could make sense to hold some exposure as long as the fundamentals don’t deteriorate. But I wouldn’t be adding here unless the valuation reset.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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Comments

  • Valerie Archibald
    06-17
    Valerie Archibald
    still believe this stock belongs $55-56/sh range, that still compensates for the potential 10% impact for what little they get from China, not sure folks understand this company has done decent job of insulation from tariff impacts.

  • Venus Reade
    06-17
    Venus Reade
    I have held this company for years, so a little volatility doesn't bother me.

  • zingle
    06-16
    zingle
    Great analysis
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