Tractor Supply at Fair Value

Tractor Supply Company’s (TSCO - Analyst Report) first quarter results came in below expectations, and management lowered its guidance for full-year 2008. The weaker-than-expected results were due to the consumer cutting back. Management now expects full-year EPS to be at or slightly below the low end of its previously provided range, which was $2.54 to $2.62. We reduced our EPS estimates accordingly.

That said, the company’s store expansion plans, expanded merchandise mix, and operating improvements bode well for its long-term growth. But near-term issues will continue to pressure consumer spending, and that will cause TSCO’s earnings growth to come in below trend for the next few quarters.

Given the difficult consumer spending environment, the shares look reasonably valued at current levels. To reflect first quarter results and currently anticipated sales trends, the company revised its fiscal 2008 guidance. The company expects net sales of $2.98 billion to $3.04 billion, down from its prior guidance of $3.01 billion to $3.08 billion. Same-store sales for the year are expected to be approximately flat to 2% compared to prior expectations of an increase of approximately 1% to 3%.

We maintain our Hold rating and $39 target price, which is about 16x our 2008 EPS estimate and in-line with its long-term EPS growth rate. Tractor Supply shares currently trade at 15.2x our 2008 EPS estimate and 13.2x our 2009 EPS estimate. This valuation is in-line with the company’s expected long-term earnings growth rate. Given the difficult consumer spending environment, the stock appears to be reasonably valued.

Read the full analyst report on TSCO.

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