Petsense Acquisition Makes Sense for Narrow-Moat Tractor Supply
Although the deal is small, it's a good fit for the undervalued retailer.
Narrow-moat-rated Tractor Supply (TSCO) announced the acquisition of 136 Petsense stores for $116 million, net of acquired forward tax benefits of $29 million. The firm financed the transaction with cash and management noted that it does not expect it to have a material impact on its earnings per share for fiscal 2016. Overall, we think the acquisition is a good fit for Tractor Supply but think that, due to scale, Petsense will have little noticeable impact in the near term. We plan to maintain our $84 fair value estimate at this time, as Tractor Supply held its 2016 EPS outlook firm ($3.22-$3.26), and view shares as undervalued trading at a nearly 20% discount.
Petsense's 136 stores will join Tractor Supply’s 1,542 locations. While on a store basis, Petsense's 136 locations represent 9% of total stores, they represent only about 3% of selling square footage by our calculation, so much of the growth over the next few years will continue to stem from Tractor Supply-branded location. Petsense locations have about 5,500 selling square feet whereas Tractor Supply checks in around 16,000 inside selling square feet.
Jaime M. Katz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.