Analyst Note| Jaime M. Katz, CFA |
We plan to increase our $130 fair value estimate for narrow-moat Tractor Supply by a high-single-digit rate, after incorporating third-quarter results that surpassed our expectations and a lifted the fourth-quarter outlook. In the third quarter, same-store sales of 13% handily outperformed our 3% estimate (with 700 basis points stemming from inflation), driving sales to $3 billion (up 16%), and contributing $0.15 of EPS outperformance (to $1.95). Most of the remaining upside stemmed from better-than-expected selling, general, and administrative cost (including depreciation and amortization), which represented 26.1% of sales, 100 basis points better than our model, driving an incremental $0.19 upside from our $1.61 EPS projection. All in, this led to a 9.8% operating margin metric, a high-water mark for the company’s third-quarter period, 10 basis points above last year (when the company delivered same-store sales of 27%) and about 100 basis points above our forecast.