With a daily gain of 3.64% and an Earnings Per Share (EPS) (EPS) of 9.71, Tractor Supply Co (TSCO, Financial) seems to be a promising stock. The question that arises, however, is whether the stock is modestly undervalued. This article delves into the valuation analysis of Tractor Supply Co, providing valuable insights for potential investors.
Company Snapshot: Tractor Supply Co
Tractor Supply Co is the largest operator of retail farm and ranch stores in the United States. The company primarily targets recreational farmers and ranchers, with minimal exposure to commercial and industrial farm operations. As of now, the company operates 2,083 namesake banners across 49 states, along with 189 Petsense and 81 Orscheln Farm and Home stores. The stores are mainly located in rural communities rather than urban and suburban areas. In fiscal 2022, the company's revenue primarily consisted of livestock and pet (50%), hardware, tools, and truck (19%), and seasonal gift and toy (21%).
Comparing the stock price of $222.33 per share with the GF Value of $248.05, it appears that Tractor Supply Co is modestly undervalued. This conclusion is drawn based on the company's market cap of $24.4 billion and its intrinsic value, which is calculated using the proprietary GF Value method.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor rooted in past performance and growth, and future business performance estimates. The GF Value Line represents the fair trading value of the stock.
According to GuruFocus Value calculation, Tractor Supply Co appears to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth. If a stock's price is significantly above the GF Value Line, it is considered overvalued and its future return is likely to be poor. On the contrary, if the stock price is significantly below the GF Value Line, its future return is expected to be higher.
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Financial Strength of Tractor Supply Co
Before investing in a company, it's crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are excellent indicators of a company's financial strength. Tractor Supply Co's cash-to-debt ratio of 0.04 is lower than 91.92% of companies in the Retail - Cyclical industry, indicating fair financial strength.
Profitability and Growth of Tractor Supply Co
Investing in profitable companies is less risky, especially those demonstrating consistent profitability over the long term. Tractor Supply Co has been profitable for ten out of the past ten years. Over the past 12 months, the company had revenues of $14.5 billion and Earnings Per Share (EPS) of $9.71. Its operating margin of 9.91% is better than 78.3% of companies in the Retail - Cyclical industry. Furthermore, the company's 3-year average annual revenue growth of 22.3% ranks better than 84% of companies in the Retail - Cyclical industry. The 3-year average EBITDA growth rate is 26.8%, which ranks better than 76.37% of companies in the same industry.
ROIC vs WACC
Return on invested capital (ROIC) and weighted average cost of capital (WACC) are two important metrics to assess a company's profitability. Tractor Supply Co's ROIC for the past 12 months is 18.51, while its WACC is 7.1, indicating a higher return on invested capital than the cost of capital.
Conclusion
In conclusion, the stock of Tractor Supply Co (TSCO, Financial) presents signs of being modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 76.37% of companies in the Retail - Cyclical industry. For more detailed information about Tractor Supply Co's stock, you can check out its 30-Year Financials here.
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