Tractor Supply Company (TSCO)

Conclusion

Tractor Supply Company is a US rural lifestyle retailer. It sells livestock and equine feed, companion animal products, seasonal and recreation goods, truck and hardware products, and clothing and gifts through its stores and websites. At 37.40 USD on 9 November 2026, the market capitalisation is 19.49 billion USD.

The verdict is overvalued, with a margin of safety of -22.5%. The fair value band runs from 23.18 to 34.77 USD, with a midpoint of 28.97 USD. Four of five multiples are below their ten-year medians, with P/E at 19.9 against 24.0 and EV/EBITDA at 13.8 against 16.9. Price to free cash flow is the exception, at 67.1 against 33.1, a premium of 103.0%. The DCF gives 9.41 USD per share at a discount rate of 8.9%, and the fair value from historical multiples is 48.53 USD. The reverse DCF implies growth of 25.0% a year, against revenue growth of 7.9% a year over five years and free cash flow per share growth of -5.8% a year over the same period.

What holds the case up is the balance sheet and the return on capital. The Altman Z-score is 3.90, interest coverage is 18.9x, and ROIC of 11.7% exceeds WACC of 7.6%. Revenue has grown in all ten years. What would break it is weak cash generation: free cash flow conversion is 29.7% on a trailing basis against 56.6% over five years. Net debt to EBITDA is 3.46x, the quick ratio is 0.13, and the free cash flow yield is only 1.5%.

Financial health

Financial strength is green, held up by the Altman Z-score of 3.90 and interest coverage of 18.9x, while net debt to EBITDA of 3.46x is only neutral. The current ratio is 1.38, but the quick ratio is just 0.13, and debt to equity is 2.53. The Altman model was designed for manufacturers, so its zone is a rough guide for a retailer. The Altman zone is safe. Insolvency risk: low, about 1.8% by the estimate of the Ohlson model over one to two years, based on the 31 December 2025 figures. The company's debt is high relative to earnings, but the interest burden is covered many times over.

Earnings quality

Earnings quality is yellow. Share count fell by 1.95% a year over five years, which reflects buybacks, and stock-based compensation is small at 0.4% of revenue. Free cash flow after stock compensation is 225.7 million USD. Against that, free cash flow conversion is 29.7% on a trailing basis and 56.6% over five years, which is the weakest signal here. The accrual ratio is -5.2%, and the Piotroski score is 5 out of 9. The Beneish M-score is not available. The company beat earnings estimates in 3 of the last 8 quarters and missed in 5, with an average surprise of -2.4%. Estimates for the current year rose 3.8% over 90 days, while next year's estimates moved only 0.2%.

Profitability

Profitability is yellow. Gross margin is 31.5% against a ten-year median of 34.7%, operating margin is 8.6% against 9.7%, and net margin is 6.1% against 7.1%. All three sit below their medians. ROIC is 11.7% against a WACC of 7.6%, and the given ROIC minus WACC value is 4.1%, which is a good signal. The five-year median ROIC is 17.1%, so returns have fallen from that level. Return on equity is 36.7%, but the DuPont split shows this comes from leverage: a net margin of 7.1%, an asset turnover of 1.42, and an equity multiplier of 4.24. Most of the high return on equity reflects borrowing rather than operating strength.

Growth

Growth is green. Revenue compounded at 3.0% over three years, 7.9% over five years, and 9.6% over ten years. Earnings per share compounded at 2.0% over three years, 10.1% over five years, and 13.1% over ten years. Free cash flow per share grew 10.2% over three years and 17.3% over ten, but fell 5.8% a year over five. Revenue has grown in all ten of the last ten years. Growth has slowed recently, and the next-year growth estimate is 5.6%.

Valuation

Valuation is red. Trailing P/E is 19.9 against a ten-year median of 24.0, a premium of -17.1%, and EV/EBITDA is 13.8 against 16.9, a premium of -18.2%. Price to sales is 1.22 against 1.81, and price to book is 7.32 against 10.60. Price to free cash flow is 67.1 against 33.1, a premium of 103.0%, which reflects weak recent cash flow. The DCF gives 9.41 USD per share, using a discount rate of 8.9%, 7.9% growth in the first stage and 2.5% terminal growth. The terminal value accounts for 57.7% of that figure. The fair value from historical multiples is 48.53 USD. The fair value band is an order-of-magnitude estimate built on fixed assumptions, such as a 5% equity risk premium and capped growth, and is not a price target. The reverse DCF implies 25.0% growth, against 7.9% revenue growth over five years. The dividend yield is 2.6%, but the payout on free cash flow is 171.7%.

Risks

The main risk is that cash generation does not recover. Trailing free cash flow conversion of 29.7% and a free cash flow yield of 1.5% leave little room for the dividend, which takes 171.7% of free cash flow. A higher net debt to EBITDA of 3.46x combined with a quick ratio of 0.13 limits flexibility if sales weaken. Falling profit margins, with operating margin at 8.6% against a median of 9.7%, would reduce returns toward the 7.6% cost of capital. Missed estimates, with 5 misses out of 8 quarters, point to pressure on earnings. The Beneish M-score is not available, so manipulation risk cannot be checked. This analysis has no debt maturity schedule and no revenue by segment, so refinancing risk and the performance of each business line cannot be assessed.