Tractor Supply beat worth almost $1B

Take that, doubters.

After weeks of wringing their hands and anxiously observing shaky macroeconomic data, investors on Thursday renewed their love affair with Tractor Supply following the company's strong earnings report [2]. At about 1 p.m., shares of the Brentwood-based retailer of farm and ranch supplies were up more than 17 percent (Ticker: TSCO [3]) to about $92.70. The move added about $990 million to Tractor Supply's market value, which had shrunk by a quarter since Memorial Day.

Volume in Tractor Supply was very heavy, with activity on track to more than quadruple the stock's average daily volume. The jump erased a large chunk of the drop since late May and pushed Tractor Supply's market cap back above $6.5 billion.

A number of analysts following Tractor Supply upgraded its shares in the wake of the earnings report. Christopher Horvers at JPMorgan hiked his rating to 'overweight' from 'neutral' and lifted his price target to $100 from $90. Over at Feltl, Brent Rystrom now rates Tractor Supply a 'strong buy' instead of a buy and has a $105 target.

Aram Rubinson at Nomura was ahead of them and others who until now were more cautious on Tractor Supply. In a note last week [4], he encouraged investors to step into the stock ahead of earnings. On Thursday, he said "there are still many ways to win [5] for investors in TSCO. New units are growing 8% per year; we think comps are likely to grow 5% or more."

On their conference call Wednesday [6], Chairman and CEO Jim Wright and his top lieutenants looked ahead to the second half of the year and cautioned that their sales growth will likely slow as Tractor Supply comes up against tough 2011 comparisons. But they also voiced confidence in their ability to grow margins, which will be helped in part by lower freight costs.

Also discussed was how the widespread drought might affect the company. To sum it up:

Jim Wright
We certainly don’t want them in Q2. Although, we were able to manage our way through it. I would say that generally a drought is going to be more of a topline challenge than an EPS challenge for us. So comment to your point, yeah, the margins are higher on drought-related SKUs but the average ticket is lower.

Dan Wewer – Raymond James
So little sales headwind but a margin benefit?

Jim Wright
Correct.