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We reiterate our long-term Neutral recommendation on Tractor Supply Company (TSCO - Analyst Report) with a target price of $68. The company also holds a Zacks Rank #3 (Hold).

Why Neutral?

Tractor Supply is the largest operator of farm and ranch stores in the U.S., and has a unique market niche of serving the lifestyle needs of recreational farmers and ranchers. The company revamped itself by concentrating on square footage growth and maximizing productivity from its existing store base.

In addition, the company implemented significant changes in its store operations to make them simpler and more customer-friendly. We believe these initiatives will induce more traffic to its stores and boost the top line.

We believe that Tractor Supply continues to progress well with its growth initiatives, which include expanding its store base and incorporating technological advancements to serve clients better. The company leverages an extensive network of stores to penetrate into target markets, which in turn, enable the company to generate healthy sales and gain market share.

In keeping with this strategy, the company reached a new milestone of stepping into 3 new states in fiscal 2013 including Arizona, Nevada and Wyoming, expanding operations to 48 states. Going forward, the company remains focused on spreading its wings in the West.

We commend Tractor Supply’s consistent endeavors to remain focused on growth, which has produced desirable results amid a soft economic environment. The company’s fourth-quarter 2013 earnings remained solid, improving year over year and beating the Zacks Consensus Estimate.

Though the company posted better-than expected bottom-line results coupled with improved margins, a softer-than-anticipated top line in the fourth quarter remained an offset. Further, the company communicated a conservative initial fiscal-2014 guidance anticipating a higher deflation going into 2014. This in turn triggered a downward trend in the Zacks Consensus Estimate for fiscal 2014 and 2015, as analysts become less constructive on the stock’s future performance.

Moreover, we remain somewhat wary due to the sluggish economic recovery and challenges posed by unfavorable weather conditions in the farmers’ business operations.

Other Stocks Worth Considering

Other stocks that are worth considering in the retail industry include Haverty Furniture Companies Inc. (HVT - Snapshot Report), Christopher & Banks Corporation (CBK - Snapshot Report) and KAR Auction Services Inc. (KAR - Snapshot Report). Of these, Haverty Furniture and Christopher & Banks have a Zacks Rank #1 (Strong Buy), while KAR Auction carries a Zacks Rank #2 (Buy).

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