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BTIG Downgrades Tractor Supply Following Outlook On 'Sustained Weakness'; Stock Topples

TSCO | September 8, 2016

Close on the heels of Tractor Supply Company (NASDAQ: TSCO) reducing its full-year outlook, BTIG downgraded the stock from Buy to Neutral, citing "sustained weakness." Following the downbeat guidance and downgrade, the stock tanked more than 14 percent in pre-market trading.

In the last four quarters, the company's EPS has either come in line or topped the estimates. Analysts' were looking for a growth of 12 percent in EPS on 9.5 percent uptick in revenue for the full year 2016. The revised forecast came in below this estimate.

Analysts Alan Rifkin and Marvin Fong suggested that the company moderate its square footage growth next year. Tractor Supply, however, has not disclosed any such plans or modification in its tactics. The analysts believe business trends should stabilize and enhanced visibility would enable it to aim for better growth.

In a research note to clients, the brokerage said, "TSCO is experiencing weakness in the energy patch, which is ~25 percent of the storebase, with both comps and transaction counts declining. Agriculture-dependent communities are experiencing a third year of declining farm income, which we believe is pressuring CUE sales (~50 percent of revenues) and is having a broader effect on rural communities."

The lead analyst sees a challenging season of cold weather based on the weak pre-season demand for heating-related products.

On the positive side, the brokerage pointed out that the West and Southeast have less exposure to energy and agriculture and remain the best performing regions. Similarly, livestock and pet, which represented 45 percent of sales, witnessed mid-single-digit growth.

At time of writing with 20 minutes remaining in Thursday's pre-market session, Tractor Supply was down 14.77 percent at $71.19.

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