A company that offers a multitude of products and services meant to satisfy a broad range of needs for the average consumer is a company worth consideration. Add solid financials with strong earnings growth and a healthy dividend, and Tractor Supply (TSCO -0.15%) becomes a plus for any portfolio.

Tractor Supply caters to small and recreational farmers, gardeners, pet and livestock owners, and sportsmen and sportswomen of all ages. It stocks a diversified array of tools, hardware, lawn and garden equipment, apparel, sporting supplies, pet supplies, and much more. With 1800 stores in 49 states, and over 175 Petsense specialty stores (mostly located outside major metropolitan markets), these rural one-stop-shops are easily accessible. 

A backyard with a shed and multiple gardens.

Image Source: Getty Images.

A tariff-resistant business model

Don't think for a moment that this is a small mom-and-pop type of business. Revenue for the twelve months ending June 30, 2019 was $8.19 billion, an 8.19% increase year-over- year. This retail company is continuing to grow at a time when many are closing. By some estimates, 12,000 retail stores are expected to close in 2019, which would be double the number of closings over last year, but TSCO is continuing to expand despite volatile times. Since Tractor Supply is not in the big farm business, it has less tariff exposure than most of its bigger peers -- a positive indicator going forward as trade war tensions continue to climb. With a growing do-it-yourself customer base and a product line that should weather hard times, this company is set for growth in the future.

A unique customer base

Tractor Supply's customers are not typically urban-based consumers, and are less courted by many other big box retailers because they are not chasing the latest gadgets, electronics, or designer clothing. They are mostly small farmers, ranchers, and community-oriented people who want to improve everything from their lifestyle to their backyards. They tend to be more resistant to aggressive trend marketing and are more likely to return to entrusted standbys like Tractor Supply.

Obviously, any business of this kind will have seasonal ups and downs, and the hot times are usually spring and summer, but Tractor's diversified inventory, its e-commerce success, and its convenient pickup solution are helping to expand business year-round.

Because Tractor Supply offers large items and equipment, it recently began offering a pick-up feature to help customers save time with online purchase and pickups from its massive lockers. While some competitors offer similar programs, Tractor had a long testing period that began with a two store pilot to make sure it was customer-friendly before it was implemented nationwide. It was vitally important for the company to add more inventory to its already-substantial e-commerce business so customers could pick up their orders locally. Now, 20% of customers buy additional items at the store when they go in for pickup, according to Vice President of Omnichannel for Tractor Supply Letitia Webster. 

In addition, subscription retail and its Neighbors Club, which surpassed 11 million members last year, are a huge success. Neighbors Club is a benefits program that offers perks and rewards to those who enroll, a personal credit card with 5% cash back on all qualifying purchases, cash back for purchases, and other special perks. The club offers four seasonal rewards each year, members-only savings, a birthday surprise during any member’s birth month, monthly giveaways, and even club coupons.

Target's numbers are attractive 

Tractor's stock price has fallen since this past summer, but just an increase back to those previous levels in the future will reward investors with double-digit returns. It has a price earnings ratio currently of just 20.75, and the company expects net sales in 2019 to be $8.31 billion to $8.46 billion, which would be an increase of 5% to 7%. Tractor's profit margin as of June 30, 2019 was 6.71%, as opposed to Walmart at 2.48% and Target at 4.1%. Tractor's operating margin is exceptional considering these larger competitors, and with continued expansion, there are better things to come. This is something not often discussed due to the differences in the size of these companies, but nonetheless impressive.

An exceptional company

All in all, this company that has been around for more than 80 years continues to shine through the good times and bad. Targeting the rural consumer has not only been an effective business plan, but has set Tractor Supply apart from most others. With continued support of local communities, including its partnership with 4-H youth nationwide, a partnership that only solidifies its customer base, TSCO is heading in the right direction.

With pricing at this level, a solid dividend, a defensive position in the market, and continued growth initiatives, Tractor supply is a buy for the long term.