Tractor Supply downgraded at BofA days ahead of second quarter results

Tractor Supply (NASDAQ:) shares declined by over 1% after it was downgraded from Buy to Neutral by analysts at BoA Securities. The downgrade came just days ahead of the release of second quarter results, slated for Thursday, July 27.

Analysts said estimates need to be lowered as subsides, and they expect comps will be pressured because of a decline in commodity prices. Analysts also think guidance will need to be cut, and they lowered forward EPS estimates for 2023 to 2025.

“We expect TSCO to report an earnings miss and cut guidance given a fading tailwind from inflation and worsening demand for discretionary categories,” wrote BofA research analysts in a note to clients.

They estimate that one-third of Tractor Supply’s revenue comes from animal and pet food. This makes corn, soy, and chicken prices a strong leading indicator for the inflation component of its same-store sales growth.

“These commodities saw strong inflation over the pandemic and TSCO’s comps benefited, but prices flipped negative YoY at the start of this year, so we expect a lessening tailwind through 2023 and headwind by 1Q24. In 2014, TSCO saw comp pressure and a 26% stock price correction from a deflationary commodity cycle,” said the analysts.

BofA lowered its price objective on Tractor Supply from $270 to $226.