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Bull of the Day: Tractor Supply (TSCO)

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Tractor Supply Company (TSCO - Free Report) recently posted one of the best quarters I've ever seen by a big box retailer. This Zacks Rank #1 (Strong Buy) saw record sales and earnings in the second quarter.

Tractor Supply Company operates 1,881 stores in 49 states along with an e-commerce website. If you're not familiar with the brand, that means you don't live in a rural area. It's motto is for life "Out Here". It's a one-stop shop for recreational farmers, ranchers and others living in rural areas.

Additionally, Tractor Supply owns and operates Petsense, a small-box pet specialty supply retailer, which focuses on the needs of pet owners in small and mid-sized communities. It operates 180 Petsense stores in 25 states.

A Big Beat in Q2

The second quarter was supposed to be "awful" for most companies but Tractor Supply operated as an essential business during the coronavirus shutdown, and its customers remained loyal by shopping online and using the extended benefits like curbside pick-up.

On July 23, Tractor Supply reported its second quarter 2020 results and blew by the Zacks Consensus by $0.28. Earnings were $2.90 versus the consensus of $2.62.

Net sales rose 35% to a new record high of $3.2 billion from $2.4 billion in the year ago quarter.

Comparable store sales, a key metric in retail, jumped 30.5% as comparable transaction count and comparable average ticket rose 14.6% and 15.8%, respectively.

It saw unprecedented demand for spring and summer seasonal categories, with big growth in everyday merchandise, including consumable, usable and edible products. Consumers were focusing on their homes, land and animals during the quarter.

It saw strong comps in all geographic regions.

Additionally, its ecommerce business saw triple-digit sales growth.

Gross margin rose 155 basis points to 36.4% from 34.9% due to less promotions and lower transportation costs.

Bullish Q3 Guidance

Tractor Supply saw the strong consumer trends continue into the third quarter so it gave bullish guidance including comparable sales in the range of 12% to 18%. Very few retailers are able to ever get to the magic level of double digit comparables.

Earnings are expected to be between $1.15 to $1.35.

The analysts reacted to the strong second quarter and the guidance by raising their 2020 and 2021 earnings estimates.

The Zacks Consensus for 2020 jumped to $6.18 from $5.64 since the earnings report. That's earnings growth of 32% compared to 2019 as Tractor Supply only made $4.68 last year.

9 estimates were also revised higher for 2021, pushing the Zacks Consensus up to $6.30 from $5.91 in that time.

Plenty of Cash on Hand

Lots of investors want to know what the cash situation is for companies right now. And for good reason.

Tractor Supply had $1.3 billion in cash at the end of the second quarter.

It had not drawn down anything from its $500 million revolving credit facility either.

Shares at 2-Year Highs

Shares have been soaring the last few months and are now up 53% year-to-date.

They're hitting new 2-year highs.

But with earnings estimates actually on the rise, shares are not really expensive here. Tractor Supply has a forward P/E of 23.

That makes it a little bit cheaper than competitors like Home Depot (HD - Free Report) and Walmart (WMT - Free Report) , who both trade with forward P/Es of 26.

Investors also get a dividend, currently yielding 1%.

For investors looking for a retailer operating on all cylinders during the coronavirus crisis, Tractor Supply is one to keep on the short list.

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The Home Depot, Inc. (HD) - free report >>

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Tractor Supply Company (TSCO) - free report >>