January 10, 2009 - Tractor Supply Co. (TSCO-NASDAQ) operates retail farm and ranch stores in the United States. The company offers equine, pet, and animal products, including items necessary for their health, care, growth, and containment; maintenance products for agricultural and rural use; hardware and tool products; lawn and garden power equipment; truck and towing products; and work/recreational clothing and footwear.

Since 2000, earnings have grown every year, starting at 47 cents a share and finishing 2007 at $2.40. Analysts think all of 2008 will show $2.54 and 2009 will generate $2.72. 15 analysts cover the stock, and the range for 2008's earnings is between $2.50 and $2.59 and for next year, between $2.51 and $2.88. Average annual growth of earnings for the last 5 years was 26%.

Sales have been ramping as well, though not as quickly. They've gone from $2.068 billion in 2005 to an estimated $3.01 billion this year. Next year analysts predict $3.24 billion. But that's bound to be revised given the latest unemployment numbers recenlty released.

Tractor Supply carries items that are mostly non-discretionary for the rural life, the basics, if you will. From the right clothes to feed for horses, if someone owns a farm or ranch, he or she needs what TSCO sells. While sales have increased every year and new stores opened, expansion through more stores is slowing for 2009 and most likely 2010.

In 2008, total new stores will be about 90. This year, look for about 70 to 80, down from an initial estimate of 95 to 100, due to a slowing economy and developers having problems completing projects. If the economy stays poor or worsens, look for even fewer new stores next year. All told, instead of growing by its usual 13% a year (in store count), it will be more like 8% to 9%. Management states it's identified 1400 new store locations.

The typical Tractor Supply customer is in good financial shape with a low-cost rural lifestyle. They usually have smaller homes and manageable mortgages, leaving them enough income to pay for items needed for their pets and other animals as well as implements used on a farm or ranch, like tractors.

Part of the earnings growth strategy for TSCO is to sell more apparel because it carries higher margins. Another element: more private-label and direct-sourced goods. With decent store expansion and better margins, earnings should continue to grow and improve markedly once the economy returns to a normal level.

More numbers: Market Cap is $1.17 billion with 36.24 million shares outstanding and a float of 31.86 million. Insiders own 12.27% of the oustanding shares and institutions own 98% of the float. Forward P/E is 11.8. Price to Book is 2. Operating margin was 5.43% for the last 12 months while Profit margin was 3.26%. There's very little debt ($25.64 million, about 4% of capital). Total cash is $16.5 million. Current ratio is 1.62. Book Value is $16.53. The stock has a very low Beta of .26. The 52-week range on the stock is $26.70 to $47.50. There is no dividend.

Yes, Tractor Supply is a retailer, but it occupies a niche that doesn't have a lot of competition, especially in markets where it's the only supplier of farm and/or ranch items. In certain areas, Home Depot and Lowes carry some similar products. Management has proven it can handle growth and has expansion plans. Look deeper into this specialty company if you still want to be invested in retail but without the concerns of fashion or the usual customer base.

- Company Web site: www.tractorsupply.com

- Ted Allrich