elinsky tractor supply pitch

8/4/2019 Elinsky Tractor Supply Pitch

1/16

RUNNINGONALLCYLINDERSPLANNING.EXECUTION.RESULTS.

byBrianElinsky

09/12/2011

NASDAQ:TSCO


2/16

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.


3/16

Outline

Thesis FundamentalAnalysis

IndustryandCompevePosionFinancialsGrowthandRisks

TechnicalAnalysisS&P500analysisTSCOanalysis PossibleOutcomesandRecommendaon

Appendix:ExpandedFinancials


4/16

Thesis

Assumpons:CurrentOutlook:MarketinconfirmeduptrendEarningsdrivegrowth,salessustainearnings

Perspecve:CANSLIM(Small-MidCapGrowth,MarketLeaders


5/16

Thesis

Quality:TractorSupplyhasexecutedandperformedwellthroughthedifficulteconomicenvironment,drivingstrongEPSgrowthamidst

negavecomps.Asaneconomicrecoverytakesplaceandconsumerspendingaccelerates,TSCOiswellposionedtobenefitthroughlong-termacceleraonofsame-storesalesstrength.

Timing:Buyonapullbacktotheprimarytrendlineoronabreakoutaerthebaseisfinishedbuilding.


6/16

Compeon

Verylimitedandfragmentedcompeon GriffinLandandNurseriesInc. CallowaysNurseryInc. LumberLiquidators TitanMachinery HomeDepot RONAInc. Lowes


7/16

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


8/16

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.


9/16

S&P50

0Analy

sis


10/16

SPXWeekly

ThereappearstobelongtermsupportintheS&P500atthe1120level.Directlyabovethe

consolidaonthemarketputinsummerof2010.

Adropbelowthe1120levelwouldputthemarketuptrendunderpressureorinanoutright

correconandwouldviolatemythesis.


11/16

SPXDaily

Themarkethasconsolidatedfor5weekssincethedebtcrisisdebacle.Themarkethas

beenwillingtosupportthe1120levelonsevenseparateoccasions.

Themarketisalsoformingatriangle.Expectaexplosivebreakoutofthetriangleor

consolidaonareainthenextfewdaystoweeks.


12/16

TSCOWeekly

TSCOspentthebeerpartof2yearsinanupwardtrendingchannel.Trendline

supportbrokedowninheavyvolume5weeksago.

ThemarkethasbeenwillingtosupportTSCOatits50weekmovingaverage.


13/16

TSCODaily

TSCOspentMarchthroughJuneconsolidangandbuildingafoundaononwhichtobreakout.The

stockbrokeprimarytrendlinesupportandthesummerconsolidaoninheavyvolumeinearlyAugust.

Thisalongwithanintradaydeclineof16+%onAugust8thshookoutthehotmoneyinthestock,

leavinglongterminvestorslessapttosellduringthenextretracement.


14/16

Recommendaon

Outcome1:BuyTSCOonapullbacktotheprimarytrendline(~$60).Setastoplossat$55.20(8%).

Outcome2:LetTSCOconnuetobuildoutitsbase.Lookforahandletoformbetween$65and$70.Buyonabreakout.Setan8%stoploss.

SelliftheS&P500dropsbelow1120andthemarketrollsover.

Lookfora20%gainin10weeksorless. Aer20%,reevaluate.


15/16

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


16/16

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

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