Tractor Supply (TSCO) faces a more uncertain macro environment that is expected to limit near-term earnings upside, BofA Securities said in a report Tuesday.
Subdued pet spending, a lack of big-ticket momentum and weak discretionary demand are likely to continue weighing on earnings per share, while higher diesel prices following the war in Iran may also pressure margins, the report said.
"The environment has clearly become more uncertain," the brokerage said, noting that inflation is weighing on the "hobby" chicken farmers segment, with fewer new entrants into the category.
However, Tractor Supply's strong management team and expansion plan of about 100 new stores per year are viewed as "solid foundational pieces" by the firm.
One potential area for growth includes a rise in corn prices, and analysts estimate that because roughly one-third of the company's sales are tied to animal and pet food, commodity inflation could eventually drive higher sales, according to the note.
BofA reinstated coverage of Tractor Supply with a neutral rating and a $47 price objective.
Shares of Tractor Supply were down 4% in Tuesday trading.
Price: 43.60, Change: -1.79, Percent Change: -3.94
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