Tractor Supply receives a downgrade following a Q2 miss

Barclays downgraded Tractor Supply Company (NASDAQ:) from Overweight to Equalweight, cutting its price target from $254.00 to $224.00. The decision comes in the wake of the company’s disappointing announced last week, which fell short of consensus estimates.

The downgrade stems from concerns about the company’s growth prospects and uncertainty surrounding its performance going forward. While the analysts do not foresee a significant downside to estimates, they point out the challenges in envisioning a robust upside case due to mixed top-line trends and uncertainty about the real run rate of the business. This lack of clarity makes it difficult to justify the multiple expansion required for the stock to outperform.

The lackluster H1 results were attributed to several factors, including adverse weather conditions, weakness in big-ticket sales, and changes in consumer shopping behavior leading to lower units per transaction. These factors contributed to the lowering of guidance for H2 sales and EPS, leaving doubts about the company’s ability to bounce back and surpass expectations in the near term. However, the analysts acknowledge the possibility that this may mark the worst of the misses, but such a rebound would likely hinge on external factors beyond the company’s control.

Despite the short-term concerns, analysts maintain a positive medium to long-term view of Tractor Supply Company. Q2 results highlighted a consistent core consumable trend, while weather fluctuations and certain discretionary categories caused volatility in the figures.

Looking ahead, the company has several strategic initiatives in their early stages, such as Project Fusion and other productivity drivers, the growth of Neighbor’s Club, and Orscheln conversions. Furthermore, there is optimism about significant customer growth since 2019, with the opportunity for this customer cohort to increase their spending over time. As a result, Barclays still sees a compelling opportunity for the company to return to positive mid-single-digit comparable store sales at some point.