For Immediate Release
Chicago, IL – June 24, 2020 – Zacks Equity Research highlights Tractor Supply Company TSCO as the Bull of the Day and V.F. Corp. VFC as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Lennar LEN andToll Brothers TOL.
Here is a synopsis of all four stocks:
Bull of the Day:
Tractor Supply Company is a Zacks Rank #1 (Strong Buy) that is the largest retail farm and ranch store chain in the United States. The Brentwood, TN company offers a variety of merchandise, including equine, livestock, pet and small animal products for health, care, growth and containment.
Additionally, the company sells hardware and tools, lawn and garden power equipment, truck and towing products and work apparel. Tractor Supply employs 33,000 employees and has over 2,000 stores.
COVID-19 Drop and Pop
The March panic gave investors a great long-term buying opportunity. The stock fell almost 40% from its February levels making a low of $63.89. Since then, the stock has rallied over 100%, recently making highs near $132.
The reason for the drop was obvious, everything was falling in March. The pop was more curious at first, but now investors are realizing the dominance that Tractor Supply has in the rural markets. For that reason, they have been plowing into the stock.
Tractor Supply reported back in April when there was still a lot of fear and uncertainty in markets. However, TSCO saw a beat on EPS and reported that SSS were actually up 4.3%. Considering the COVID retail pain was mostly in the cities, the company didn’t see as much of an impact as others.
In May the company came out with a Q2 Guide that blew away the numbers. The company now sees $2.45-2.65 v the $1.77 expected. Additionally, they see SSS up 20-25%. The company said it experienced record sales across its channels, product categories and geographic regions. The e-commerce portion of its business saw substantial growth as customers ordered online and picked up at the store.
The earnings report in April took the stock above February levels and the guide helped accelerate the stock higher. With analysts raising price targets and estimates, investors can’t get enough of Tractor Supply.
Over the last 30 days, estimates for the current year have gone from $4.73 to $5.57, a move of 18%. For next year, estimates have been taken up 6.4% higher over the same time frame.
Analyst commentary cites the niche customer base, lack of competition and store-expansion as reasons to own the stock. Piper, Wedbush, Oppenheimer, Guggenheim and UBS have all raised their price targets for the stock since the Q2 guide.
Farmer Aid and Stimulus Checks
A big reason that the company has done so well is their quick ability to adjust to the pandemic and offer digital sales and curbside pickup. However, consumers ultimately need cash to spend and the stimulus checks were a big factor in allowing costumers to put that money to work. Additionally, the $19B farmer aid program gave farmers cash payments and bought farm products that helped the cash flow in rural America.
The Technical Take
The stock has had a run and for most chasing it at all-time highs isn’t appealing. So let’s look at some levels where a trade entry might work out over the long run.
For those looking to jump in, potential upside in the short-term is $158, which is the 261.8% Fib level from the move lower earlier in the year.
Those looking at pullbacks should look at the moving averages. The 21-day is the $123 area, 50-day is $111 and 200-day is $96. The $90-96 zone would be a great spot to get in longer-term as that marks the 61.8% area from March lows to recent highs. However, lets be honest in the fact that you might not see that.
Best long-term approach with this stock is to initiate a starter position and trade around technical support.
Tractor Supply is in a niche market that offers customers the essentials for farming and ranch work. Giving the sales the company is seeing during the pandemic, there is no reason to think the momentum can’t continue when the economy is back in full throttle.
While the stock has pushed to levels that seem very high, there is still meat on the bone, both technically and fundamentally. With being said, investors should jump on the pullbacks for a long-term run higher.
Bear of the Day:
V.F. Corp.is a Zacks Rank #5 (Strong Sell) that designs, manufactures and markets branded apparel and related products. The company operates under three segments which include Outdoor, Active and Work. Outdoor offers brands such as North Face, Timberland and Smartwool. Active offers Vans, Jansport, Eastpak and Eagle Creek. And Work offers Dickies, Walls, Kodiak and Horace Small.
The rally that never came.
Looking at the last three months, most stocks we see out there have a V-shaped chart. These stocks basically saw a move lower in March, bounced to February levels, and then some even kept going higher.
For VFC, there was very little love off the March lows. Yes, there was a 50% move off the $45 level. However, the stock has since been sold and is struggling to gain traction. Moreover, the stock remains almost 30% off of February levels.
Most traders will look at that chart and think “something is wrong here” so let’s look into the numbers and figure that out.
Earnings and Estimates
Back in May, the company reported a 1 cent miss on EPS, missed on revenues and suspended its share buyback program. VFC also guided Q1 Rev down to more than 50% year over year.
While the pandemic has been an issue, the company started seeing problems earlier in the year, with a 10% drop in the stock after earnings were reported in January.
Whether the pandemic or structural problems are to be blamed doesn’t matter at the moment. What does matter is the aggressive drop in estimates over the last 90 days.
For the next quarter, analysts have taken estimates lower by 63%, from $1.36 to $0.51. For the current year, we have seen an even bigger drop of 66%.
VFC recently made highs over the $70, but sellers quickly stepped in. The failure to reach the 200-day moving average about 10% higher from those highs signals weakness. The stock has held above the 21-day and 50-day at $59, but a break of that area would be troublesome.
The stock is starting to form an upwards channel, but should be monitored for a break lower if price gets below $56.
Investors will likely be wasting their time sitting in VFC. If the company is one of interest, look for the estimates to turn around and a move above the 200-day before buying the stock.
New Home Sales +16.6%, PMI Manufacturing & Services Up
On Tuesday, New Home Sales for May outperformed in a big way, up 16.6% to 676K from a downwardly revised 580K the previous month. It also easily surpassed expectations for 650K. So what had already been anticipated as a bounce-back from low levels this spring, Housing is bringing about a quicker recovery than analysts had presumed.
Record low mortgage rates on near-zero interest has proven too irresistible for prospective home buyers. And the notable lack of supply in Existing Homes for sale has propped up companies like Lennar and Toll Brothers over the near term. Sales of homes not yet built are up 20% year over year; even with demand for existing homes apparent, sales have slipped 9.7% on lack of inventory.
We may be seeing another fast-growing industry as we emerge from our pandemic crisis slumber: homebuilders will likely be adding workforce and obtaining land and building supplies going forward. New homes being built are excellent sources for economic growth — not only for mortgage brokers and their banks, but for wood and glass manufacturers, plumbers, landscaping services, etc. For this reason, a sooner-than-expected boost to the Housing industry may provide tailwinds to the U.S. economy as a whole.
If there is a caveat to this scenario, it may have to do with government forbearance programs, many of which are expected to run out at the end of next month. Mortgage payment forgiveness may run out, even as high unemployment overall remains. Should this then lead to foreclosures in the housing market, this could put some weakness into home pricing in the medium term.
PMI Manufacturing and Servicesalso surprised to the upside earlier Tuesday, up for the second straight month to 49.6 and 46.7, respectively. While still south of a headline figure of 50 or higher, signifying growth, we’re still off the record lows for April of 36.1 and 26.7, respectively. Pent-up demand is clearly filling in some of the deepest economic holes; as we get back to “normal” levels of productivity, we’ll see if we can maintain these healthy rates of change.
Market indexes are currently smiling through their Alfred E. Neuman “What, Me Worry?” phase (ask your parents). Excepting rare moments of valuation anxiety, the past two and a half months have been a boon for equities. The Nasdaq now has 8 straight days closing in the green (+0.74% Tuesday), and the S&P 500 (+0.43%) is up 3 of the last 4. For its part, the Dow closed up another half a percentage point.
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V.F. Corporation (VFC) : Free Stock Analysis Report
Toll Brothers Inc. (TOL) : Free Stock Analysis Report
Tractor Supply Company (TSCO) : Free Stock Analysis Report
Lennar Corporation (LEN) : Free Stock Analysis Report
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