Tractor Supply Harvests Growth Due to Robust Consumable Demand; Brand Asset Intact, but Shares Rich

We plan to raise our $186 per share fair value estimate on narrow-moat Tractor Supply by a mid-single-digit percentage after digesting fourth-quarter results that exceeded expectations, however, we continue to view shares as overvalued. Fourth-quarter comparable sales popped 8.6% (aided by a 2% boost from more favorable weather), above our 6% preprint estimate, composed of solid comparable ticket and transaction growth of 6.3% and 2.3%, respectively. On the profit front, higher operating costs (22.7% of sales) from the Orscheln integration and investment in growth initiatives offset better-than-expected gross margin performance (34%) thanks to price management efforts. All in, Tractor Supply delivered a 9% operating margin in the quarter, in line with our estimate.