Download - Elinsky Tractor Supply Pitch
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RUNNINGONALLCYLINDERSPLANNING.EXECUTION.RESULTS.
byBrianElinsky
09/12/2011
NASDAQ:TSCO
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Background
RetailChain.Productdivisionsinclude: Homeimprovement,agriculture,lawnandgardenmaintenance,&livestock,equineandpet
care.
Sellsproductonline 1001storesin44stateslocatedintownsoutlyingmetropolitanmarketsandin
ruralcommunies.
Eachstoreteamincludesawelder,afarmer,andahorseownerwhocollecvelyprovideanexceponaldepthofknowledgeandresources.
TractorSupplyiscommiedtounderstandingandfulfillingtheneedsofthosewhoenjoytherurallifestyle:folkswhofrequentlydescribethemselvesashobbyfarmersandhobbyranchers.Itisesmatedthatthehobbyorpleasurefarmerconsumersegmentspendsmorethan$5.5billionannuallyonfarmsupplies.Todaylessthan10percentofthecompanyscustomersclassifythemselvesasfull-
mefarmersorranchers.Infact,TractorSupplyslargestcustomersegmentdoesnotfarmatall.Theyaremoreaptlydescribedasruralorsuburbanhomeowners,orself-reliants.
AlsoownsDelsFeedandFarmSupply(26stores),afarmretailchaininthePacificNorthwest.
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Outline
Thesis FundamentalAnalysis
IndustryandCompevePosionFinancialsGrowthandRisks
TechnicalAnalysisS&P500analysisTSCOanalysis PossibleOutcomesandRecommendaon
Appendix:ExpandedFinancials
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Thesis
Assumpons:CurrentOutlook:MarketinconfirmeduptrendEarningsdrivegrowth,salessustainearnings
Perspecve:CANSLIM(Small-MidCapGrowth,MarketLeaders
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Thesis
Quality:TractorSupplyhasexecutedandperformedwellthroughthedifficulteconomicenvironment,drivingstrongEPSgrowthamidst
negavecomps.Asaneconomicrecoverytakesplaceandconsumerspendingaccelerates,TSCOiswellposionedtobenefitthroughlong-termacceleraonofsame-storesalesstrength.
Timing:Buyonapullbacktotheprimarytrendlineoronabreakoutaerthebaseisfinishedbuilding.
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Compeon
Verylimitedandfragmentedcompeon GriffinLandandNurseriesInc. CallowaysNurseryInc. LumberLiquidators TitanMachinery HomeDepot RONAInc. Lowes
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Financials
P/E(TTM):25 P/E(FTM): PEG:1.08 ROE:21% EPSGrowthRate: Debt:0%
AnnualDividend:$0.48 Yield:0.76% CurrentEV/EBITDA:11.81 MarketCap:$4620mil EV:$4436mil
Quarterly EPS %Chg Sales(mil) %Chg
Q4-Dec11* $0.84 25.82% $1,184.70 14.73%
Q3-Sep11* $0.52 20.70% $933.70 12.62%
Q2-Jun11 $1.23 18.27% $1,178.40 10.58%
Q1-Mar11 $0.24 71.43% $836.60 17.68%
Q4-Dec10 $0.67 31.37% $1,032.60 19.72%
Q3-Sep10 $0.43 43.33% $829.10 10.89%
Q2-Jun10 $1.04 38.67% $1,065.70 12.59%
Q1-Mar10 $0.14 1300.00% $710.90 9.34%
Q4-Dec09 $0.51 50.00% $862.50 7.88%
Q3-Sep09 $0.30 36.36% $747.70 1.88%
Q2-Jun09 $0.75 29.31% $946.50 5.37%
Q1-Mar09 $0.01 -133.33% $650.20 12.84%
Q4-Dec08 $0.34 -12.82% $799.50 10.54%
Q3-Sep08 $0.22 0.00% $733.90 16.64%
$1.06 $1.12 $1.21 $1.11
$1.57
$2.28
$2.83
$3.26
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
2005 2006 2007 2008 2009 2010 2011* 2012*
AnnualEPSGrowth
ataglance
*Esmatesbasedonanalystsexpectaons
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GrowthandRisks Consumerusableandediblecategoriesarecoretotherurallifestyle.Asaresult,Tractor
Supplyhasbeenabletopassthroughpricingincreaseswhilemaintainingorgainingmarket
sharethroughthisinflaonaryperiod.Thesenon-discreonaryitemsaredrivingsalesacross
allregions.
Asaresult,TSCOisbecominglessreliantonseasonalbigcketitems. TSCOhasbeenverydeliberateintrackingtrends,ancipangneeds,andbuilding
relaonshipswithourcustomersandbusinesspartners.Andthishasledtoconnuous
growthforourbusiness.
UpsideRisks
Ifrawmaterialpricesweretoincreasesubstanally,TSCOwouldlikelypassthroughthesecoststoitsconsumers,whichwouldincreaserevenuesandEPS.TractorSupplysresultsare
heavilyweatherdependent.Early,severelycoldandsnowywinterweatherwouldincrease
revenues,aswellasanearlyandwetspring/summer.Ifsuburbanandurbanfamilies
reacceleratetheirmovetothecountry,thenthiscouldprovideaseculartailwindfavorableto
TractorSupply.TSCOmarginandsalesiniavescouldbemoreproducvethanexpected,drivinghigherandmoreprofitablesales.
DownsideRisks
Ifgrossmargininiavesarelessproducvethanancipatedorthecompanymustinvestmorethanancipated,earningsesmateswouldbetooaggressive.Ifbigcketsalesremain
so,wewouldneedtoreevaluate.IfthereisashiinmigraonfromruralAmericaintothe
suburbsandurbanareas,animportantindustrydriverwouldlimitsalespotenal.
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S&P50
0Analy
sis
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SPXWeekly
ThereappearstobelongtermsupportintheS&P500atthe1120level.Directlyabovethe
consolidaonthemarketputinsummerof2010.
Adropbelowthe1120levelwouldputthemarketuptrendunderpressureorinanoutright
correconandwouldviolatemythesis.
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SPXDaily
Themarkethasconsolidatedfor5weekssincethedebtcrisisdebacle.Themarkethas
beenwillingtosupportthe1120levelonsevenseparateoccasions.
Themarketisalsoformingatriangle.Expectaexplosivebreakoutofthetriangleor
consolidaonareainthenextfewdaystoweeks.
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TSCOWeekly
TSCOspentthebeerpartof2yearsinanupwardtrendingchannel.Trendline
supportbrokedowninheavyvolume5weeksago.
ThemarkethasbeenwillingtosupportTSCOatits50weekmovingaverage.
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TSCODaily
TSCOspentMarchthroughJuneconsolidangandbuildingafoundaononwhichtobreakout.The
stockbrokeprimarytrendlinesupportandthesummerconsolidaoninheavyvolumeinearlyAugust.
Thisalongwithanintradaydeclineof16+%onAugust8thshookoutthehotmoneyinthestock,
leavinglongterminvestorslessapttosellduringthenextretracement.
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Recommendaon
Outcome1:BuyTSCOonapullbacktotheprimarytrendline(~$60).Setastoplossat$55.20(8%).
Outcome2:LetTSCOconnuetobuildoutitsbase.Lookforahandletoformbetween$65and$70.Buyonabreakout.Setan8%stoploss.
SelliftheS&P500dropsbelow1120andthemarketrollsover.
Lookfora20%gainin10weeksorless. Aer20%,reevaluate.
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2007 2008 2009 Q1 Q2 Q3 Q4 2010 Q1 Q2 Q3 Q4 2011 Q1 Q2
Revenue 2,370 2,703 3,008 650 947 748 863 3,207 711 1,066 829 1,033 3,638 837 1,178
YOYGrowth 14.1% 11.3% 12.8% 5.4% 1.9% 7.9% 6.6% 9.3% 12.6% 10.9% 19.7% 13.5% 17.7 10.6%
COGS 1,623 1,851 2,096 449 644 502 578 2,173 480 706 550 696 2,431 563 776
GrossMargin 31.5% 31.5% 30.3% 30.9% 31.9% 32.9% 32.9% 32.2% 32.5% 33.8% 33.7% 32.6% 33.2% 32.7% 34.2%
OpEx 598 693 777 200 214 210 226 850 214 236 228 258 937 245 258EBIT 148 160 136 1 88 36 58 183 16 124 51 79 270 29 144
EBITDA 190 211 194 16 103 51 74 244 33 141 68 97 339 47 163
NOPAT 93 99 83 1 55 22 38 116 11 77 32 51 171 18 91
D&A 42 51 59 14 15 15 16 61 17 17 18 18 70 18 19
CAPEX (89) (84) (92) (19) (15) (15) (25) (74) (13) (24) (30) (29) (97) (29) (45)
Dvds 0 0 0 0 0 0 0 0 (5) (5) (5) (5) (20) (5) (9)
ChangeinWC (47) 5 76 (28) 39 (23) 51 39 (48) (3) (26) 59 (18) (82) 52
FCF (1) 72 126 (32) 94 (1) 80 141 (39) 63 (12) 94 106 (79) 108
CFIex.CAPEX 8 1 3 0 0 0 0 0 0 (16) 0 0 (16) 0 (6)
CFFex.Dvds 10 152 (105) 32 (39) 4 (2) (6) 4 (4) 2 (7) (6) (38) (57)
ChangeinCash 17 224 24 (0) 55 3 78 136 (35) 43 (10) 86 84 (117) 45
Cash 26 14 37 37 92 95 173 173 138 181 171 257 257 140 186
BookValue/Share $12.26 $13.98 $14.78 $16.60 $16.18 $17.08 $17.55 $17.55 $19.20 $18.63 $19.48 $19.97 $19.97 $21.66 $21.97
MarketPrice/Share $22.36 $17.68 $17.26 $18.42 $20.53 $23.85 $27.02 $27.02 $29.12 $31.02 $38.59 $48.40 $48.40 $56.73 $64.91
EV/EBITDA 9.5x 6.7x 6.4x 6.8x 6.5x 7.3x 7.5x 7.5x 7.7x 7.1x 8.6x 10.0x 10.0x 11.6x 12.3x
AR 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0Inventory 595 636 748 730 645 704 676 676 833 702 759 737 737 941 875
NetFixed 302 333 362 365 364 363 370 370 366 373 385 396 396 414 432
TotalAssetsex.Intangibles 988 1,048 1,066 1,190 1,161 1,232 1,266 1,266 1,394 1,353 1,418 1,453 1,453 1,567 1,573
AP 229 258 287 383 295 357 262 262 395 290 349 247 247 406 352
RE 469 414 442 433 487 508 588 588 590 604 622 697 697 657 670
STDebt 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0
LTDebt 3 57 2 42 2 2 1 1 1 1 1 1 1 1 1
DilutedMkt.Cap. 1,838 1,371 1,271 1,347 1,499 1,751 1,989 1,989 2,155 2,317 2,892 3,637 3,637 4,251 4,815
EV 1,816 1,416 1,236 1,351 1,409 1,658 1,818 1,818 2,018 2,137 2,722 3,381 3,381 4,112 4,631
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Ticker Name EV
Mkt
Cap REV YoY EPS YoY
Return
YTD ROE Dvd Yield PEG P/E P/B
EV/LTM
Sales EV/EBITDA P/E
TSCO US
Equity
TRACTOR SUPPLY
COMPANY 4,437 4,621 13.5% 39.2% 34.2% 21.8% 0.7% 1.4x 25.2x 4.9x 1.1x 11.8x 25.2x
HD US Equity HOME DEPOT INC 58,078 49,854 2.8% 30.1% -7.1% 19.1% 3.1% 0.9x 14.3x 2.7x 0.8x 7.3x 14.3x
LOW US
Equity LOWE'S COS INC 29,612 23,900 3.4% 17.4% -23.3% 11.0% 3.0% 0.7x 12.3x 1.4x 0.6x 5.8x 12.3x
BBBY US
Equity
BED BATH &
BEYOND INC 12,198 14,031 11.9% 33.5% 14.5% 21.6% 0.0% 17.2x 3.6x 1.4x 7.9x 17.2x
AZO US
Equity AUTOZONE INC 16,191 13,070 8.0% 28.1% 15.4% 0.0% 0.0% 17.4x 2.1x 9.9x 17.4x
SPLS US
Equity STAPLES INC 11,099 9,624 1.1% 18.3% -39.7% 13.8% 2.9% 0.8x 10.4x 1.4x 0.4x 5.3x 10.4x
BBY US
Equity BEST BUY CO INC 9,847 9,161 1.2% -0.6% -27.9% 19.8% 2.6% 0.5x 7.1x 1.5x 0.2x 3.0x 7.1x
ORLY US
Equity
O'REILLY
AUTOMOTIVE INC 9,377 9,148 11.4% 33.6% 11.4% 15.1% 0.0% 20.2x 2.9x 1.7x 9.9x 20.2x
PETM US
Equity PETSMART INC 5,003 4,710 6.7% 26.5% 5.9% 23.0% 1.3% 1.1x 18.2x 4.1x 0.9x 7.1x 18.2x
AAP US
Equity
ADVANCE AUTO
PARTS INC 4,954 4,456 9.5% 40.4% -8.5% 39.2% 0.4% 0.9x 13.7x 5.8x 0.8x 6.4x 13.7x
DKS US
Equity
DICK'S SPORTING
GOODS INC 3,409 3,896 10.4% 30.8% -13.5% 16.0% 0.0% 17.9x 2.6x 0.7x 7.3x 17.9x
SM USEquity ILLIAMS-SONOMAINC 2,819 3,235 12.9% 156.2% -11.4% 18.0% 2.2% 0.8x 14.9x 2.6x 0.8x 5.7x 14.9x
BIG US
Equity BIG LOTS INC 2,082 2,079 4.8% 16.2% 4.1% 25.0% 0.0% 11.0x 2.6x 0.4x 4.9x 11.0x
ODP US
Equity OFFICE DEPOT INC 1,388 661 -4.2% 99.6% -56.3% -6.8% 0.0% 59.0x 1.0x 0.1x 7.0x 59.0x
OMX US
Equity OFFICEMAX INC 1,824 468 -0.9% 0.0% -69.3% 7.2% 0.0% 8.4x 0.8x 0.3x 8.9x 8.4x