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No. of Recommendations: 13
Traveling around the state this year I noticed a number of products sporting the TSC logo and took notice of a number of Tractor Supply Co. stores in various small market areas in addition to outlying larger cities. Curious, I decided to take a look at TSCO.

Quick chart link for the impatient: http://www.xdiv.com/invest/pics/tsco_ietc.gif

Company Profile

From the Tractor Supply Co. web site:

"Tractor Supply Company is the largest retail farm and ranch store chain in the United States. The company operates nearly 500 retail stores in 31 states, employs more than 6,200 team members and is headquartered in Nashville, TN."

"Tractor Supply stores are concentrated east of the Rocky Mountains and many are located in the outlying suburbs of major cities. The typical Tractor Supply store has 15,000 square feet of inside selling space with a similar amount of outside space used to display agricultural fencing, livestock equipment and horse stalls."

"Stores supply the unique products to support their customers' rural lifestyle, from welders and generators to animal care products, and men and women's workwear. You can also find pet supplies, animal feed, power tools, riding mowers, lawn and garden products and more. Each store team also includes a welder, a farmer and a horse owner who collectively provide an exceptional depth of knowledge and resources."

The company was recently named to Fortune's 100 fastest growing companies.

Current Snapshot

Numbers from Yahoo and MSN Money.

Company Industry S&P 500
Price: 38.4
Market Cap: 1.47B
P/E: 24.7 22.6 20.0
Price/Sales: 0.91 0.71 1.51
Price/Book: 4.26 2.87 2.90
Gross Margin: 30.6 33.2 47.9
Net Profit Margin: 4.0 3.5 7.7
Debt/Equity: 0 0.43 1.20
Return on Equity: 18.6 14.1 14.8
Return on Assets: 9.4 6.4 2.5

== IETC Summary ==

The calculations below may or may not be correct due to poor data handling on my part, so just keep that in mind. The data for 2004 was estimated using a run rate based on Q1 and Q2 data reported thus far this year.

Five-Minute Test

Criteria Pass/Fail
----------------------------------------
1. Auditor's Opinion Pass
2. Lawsuits Pass
3. Unusual Losses Pass
4. Restatements Pass
5. Intangible Assets Ratio Pass
6. Debt to Equity Ratio Pass
7. Revenue Growth Pass
8. Stock Based Comp. Ratio Pass
9. Short Ratio Pass

Profit Summary

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004*
Accrual 0.35 0.37 0.34 0.42 0.51 0.47 0.71 0.99 1.40 1.68
Defensive 0.14 0.38 -0.40 -0.01 -0.78 -0.16 0.96 -0.67 0.30 2.05
Enterprising 0.43 -0.14 -0.21 -0.20 -0.13 -0.32 -0.14 0.61 1.02 0.83

* = Projected

Quality of Profits and Earnings Power Chart™

View the Quality of Profits, Earnings Power Chart™ images (thanks to H. Heiserman for the Excel macros) and Price/Earnings History Chart at: http://www.xdiv.com/invest/pics/tsco_ietc.gif

Obviously a mixed bag when looking at Quality of Profits since the company came public a decade ago. However last year and the projections for this year look quite good.

Croesus Test

Numbers used are from TTM results.

Stock Inputs
------------
Price: $38.35
Shares: 41,845
Cash: 66,421
Debt: 0
Earnings: 64,200
Dividend: 0

Growth Scenarios
----------------
Scenario: A B C D E
# of Years: 3 5 5 3 5
Desired Return Rate: 17% 17% 17% 25% 17%
Est. End P/E: 15 15 22 25 25
Est. Dilution: 4% 4% 3% 2% 2%

Est. Earnings CAGR: 42.2% 33.6% 22.6% 25.7% 18.3%

Sanity Check

Growth scenarios A and B are fairly conservative, and indicate a high level of necessary results to achieve the desired returns. Scenarios D and E represent optimistic scenarios while scenario C is middle of the road. Earnings growth over the past 5 years has been about 30% a year, with much of that over the last couple of years. Estimated earnings growth over the next 5 years is about 20% per year according to analysts. The stock appears to be priced for perfection and unfortunately does not appear under valued.

Conclusions

The company has performed quite well over the past few years, and new CEO Jim Wright will be assuming control of a maturing company next month. I found shopping at one of the stores to be a pleasant experience. It almost looks like a small Home Depot in its layout, although with aisles well marked and thoughtfully arranged. Compared to Home Depot the store is focused a lot more on farm products such as animal feed and various machinery. In addition you will find tools, clothing, automotive and landscaping accessories, and even some cool farm-related toys. Currently operating in 32 states, there is some room to grow. Alas, the stock is not currently attractively priced (if only I had caught it in 2001), it will be difficult to continue growing earnings at 20+% a year. I will be keeping an eye on the stock for any pullback in price that may present an opportunity for me to open a position.
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