Trade Idea – Tractor Supply Company

As we all know from Ocean’s trilogy, playing a story once again is probably not the best. In case of Tractor Supply Co. this feeling has been underlined by different segment and company specific factors as well:

  • The outlook of the classic US retail players have been weakened mainly due to the increasing dominance of e-commerce business models. Year-to-date number on retail store closures is already outpacing that of 2008 (year of latest recession in the States) and appr. 2,880 have been announced so far this year according to Credit Suisse.
  • TSCO’s share price dropped significantly and its valuation (and its expected dividend yield) is far more expensive compared to its peers.

 

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Historical share price performance of Tractor Supply Company, source: Yahoo Finance

 

On the other hand the low-debt company could offer some locked in potential. Based on the analysts’ consensus the long-term growth prospects remain roboust despite the disappointing quarterly performance and the 12m projected share price might offer more than 20% return.

Considering all these pros and cons a new long position in TSCO has been opened at USD 53 on 24 May 2017.

Trade Idea – Macy’s

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On 9 January 2017 long position opened in Macy’s at USD 30.52.

The share price of Macy’s – one of the biggest retailer in the US and has appr. USD 10 bn market cap – decreased significantly after the CEO anticipated that sales values would be stronger (especially the watches and handbags segments delivered weak results). The envisaged OPEX cut initiatives are expected to result in more than half billion USD savings per year.

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Historical share price development of Macy’s (USD), source: Yahoo Finance

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Historical profitability metrics (mn USD), source: company reports

Key investment considerations:

  • the falling share price pushed the RSI into the oversold territory from technical perspective
  • current fundamental trends seem to be disadvantageous, however majority of the analysts maintained buy or hold recommendation in respect to the stock
  • over 4% expected dividend yield