Ticker Reports for October 27^th

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Tractor Supply Stock Pulls Back: A Prime Buying Opportunity

Tractor Supply Company (NASDAQ: TSCO) is still a good buy because of its growth, increased leverage, and cash flow used to pay shareholders. The company’s Q3 results failed to support the price action but aren’t bad news for investors, merely weaker than expected in a world with macroeconomic headwinds and a tepid retail environment. The takeaway is that this dividend achiever is on track to sustain growth in 2025 despite the headwinds and is growing its addressable market quarterly. The pullback in share prices is a chance to load up on more stock at a discounted price.

The latest news includes the acquisition of Allivet in an all-cash deal. Allivet is an online pet pharmacy and aligns with the Tractor Supply Company portfolio. To invigorate growth, it plans to market Allivet to its 37 million loyalty club members while building on the Allivet brand to grow it organically. The move is a natural progression because Allivet has already partnered to deliver services to Tractor Supply customers and is forecasted to be accretive to shareholders within the first year. Analysts estimate the acquisition is worth $15 billion of the addressable market, roughly 100% of the 2025 consensus.

Tractor Supply Company Improves Quality in a Tepid Environment

Tractor Supply Company had a tepid quarter but not a bad one, with revenue growing only 1.8% and results aligning with analysts' estimates. The critical detail is that growth was sustained due to the increased store count, which is expected to grow in 2025. Comp sales were down by 0.2%, but weakness was expected, and the 0.3% increase in ticket count suggests improved traffic despite the decline in ticket average.

Margin news is also good, with gross margin improving in Q3 due to cost management and reduced transportation expenses. Operating costs rose, offsetting the gains, but one-offs are involved, including increased depreciation and amortization related to the sale-leaseback strategy. That strategy is lightning the asset base while providing cash and improved operating leverage. Although earnings are down compared to the prior year, the $2.24 in GAAP EPS was better than expected and sufficient to sustain the fortress balance sheet and capital return outlook.

The guidance is favorable but less than the market had hoped, providing little support for the price action immediately after the release. However, the guidance range was narrowed, with the low end rising, aligning the mid-point with the consensus, an increase from the prior year. Growth is expected to accelerate for this retailer in 2025 and be sustained by a tailwind driven by store count growth, deepening penetration, and the falling interest rate environment.

Tractor Supply Company Is Worth the Higher Valuation

Tractor Supply Company tends to trade at a higher-than-average valuation relative to the S&P 500 but is worth the price. The company produces solid cash flow and is able to sustain its balance sheet, capital returns, and acquisitions such as Allivet. Highlights at the end of Q3 include an 8% increase in equity and long-term debt leverage of less than 1x equity, including the impact of dividends and share repurchases. The dividend is worth $4.40 annually, about 1.5%, with shares trading near $275 and above the broad market average despite the higher valuation. Repurchases benefit shareholders, reducing the count by 1.5% YoY on average in Q3.

The price action in TSCO fell more than 5% following the release but may not move much lower. It is approaching the 150-day exponential moving average, which has provided solid support in the past. The likely scenario is that the market will again support the price action at that level because of the operational quality and capital return outlook. If not, TSCO stock could pull back as far as $250 or lower. In that case, the stock of this high-quality retailer would provide a deep value and high yield relative to its historical norms.

Tractor Supply TSCO stock chart

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The Downtrend in UPS Stock Isn't Over Yet

The price action in United Parcel Service (NYSE: UPS) may have reached the bottom, but the downtrend isn’t over yet. The Q3 results affirm the outlook that growth can be sustained and earnings leverage realized, sparking a surge in the price action. Still, the subsequent selloff from a multi-year high confirms resistance at a critical level and the likelihood of lower prices for the stock this year.

Ultimately, it is good news for investors because it means a retest of the recent lows is likely; when it happens, the market may confirm the bottom and give the all-clear that it’s time to buy this transportation stock. As it is, the market bounced from the critical support only once and will likely retest it again at least once because it is far from confirming a technical reversal.

The question is, what kind of bottom does the stock form, how many opportunities to buy at the multi-year low, and how long will it be until there are no more chances? Based on the Q3 results, it might not be long. The takeaway from the report is that turnaround efforts are taking hold, growth is back in the picture, and earnings are improving, sustaining the capital return outlook, which is robust. The company yields more than 6% with shares near $135, and the distribution can be expected to grow over time.

United Parcel Service Shows Improvement in Q3

United Parcel Service’s Q3 results show a marked improvement over the prior quarter and year. The company posted $22.2 billion in revenue, growing by 5.4% YOY and outpacing the consensus estimate on strength in all segments. Domestic strength is noteworthy, up 5.8% on a 6.5% increase in volume that shows a stronger-than-expected customer base. International grew by 3.4% on a 2.5% increase in revenue per item, and Supply Chain Services contributed with an 8% increase, showing solid demand throughout the system and globally.

The margin news is equally good, resulting in solid earnings growth and sustained balance sheet improvement. The margin widened because of efficiency efforts, investments in technology, and repositioning, which are expected to sustain margin strength in 2025.

The net result is that the consolidated operating margin widened by nearly 300 basis points to 8.9%, driving a 22.8% increase in the adjusted operating earnings. This leaves the adjusted EPS $0.14 or 860 basis points better than expected. The balance sheet shows the impact of divestiture and transformation costs but remains in fortress condition. Leverage is low at 1.2X equity and 3.4X cash, leaving the company in nimble operating condition and able to sustain business transformation and capital returns.

The guidance for Q4 is mixed but favors a price action bottom. The company reduced its outlook for revenue to reflect the divestiture of Coyote Logistics and a diminished outlook for the 4th quarter, falling short of the consensus by nearly 100 basis points. The outlook implies growth will persist but slow to under 2%. However, the company also improved the margin outlook by 20 basis points to 9.6%, reflecting the Q3 strength and the expected stickiness of margin improvements.

Analysts Put a Floor on UPS Price Action

The consensus price target for UPS fell in 2024, but the downtrend ended in the summer. MarketBeat tracks numerous coverage initiations and positive revisions since August that have stabilized the downtrend in the consensus figure, which implies a nearly 10% upside from critical support targets. The Q3 results are sufficient to sustain the trend and support the market.

Institutional interest also shifted over the summer. The institutions sold on balance in the year's first half but reverted to buying in Q3. The Q3 spike in institutional buying coincides with the August-to-October rally and indicates a bottom in the market, if not “the bottom” for the market. Technical support appears strong in the $130 to $135 range, but a move to the $125 level is possible. The best-case scenario is that UPS market support holds firm at the 30-day moving average, near $137.50 and above strong support targets.

UPS stock chart

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Maximize Portfolio Income with These 3 Dividend ETFs

Dividend stocks offer multiple benefits for retail investors: in addition to providing a steady stream of passive income which can be reinvested to boost portfolio performance, dividends are usually a signal that a company has strong stability. Companies focused on growth—or struggling to manage one or more elements of their business operations—are typically not in a position to pay money out to investors in the form of dividends.

When selecting a dividend stock, investors often look to factors including dividend yield and payout ratio or to a history of boosting dividend payouts as indicators of a winning choice. Still, even the most established dividend-paying firms can sometimes face unexpected turmoil or otherwise have reason to reduce or eliminate payouts. As is often the case in equities investing, targeting a broader group of dividend stocks can help to minimize this risk, as well as overall performance risk. Dividend stock ETFs are an excellent way to generate income over time.

SCHD: All-Around Dividend Stock Strength

The Schwab U.S. Dividend Equity ETF (NYSEARCA: SCHD) is a well-rounded and competitively priced dividend ETF. It targets a portfolio of around 100 large-cap U.S. firms that are selected based on their long history of paying dividends. The fund also factors in elements including yield and dividend growth, helping to ensure that companies included in the portfolio have fundamentals to support continued dividend strength going forward. SCHD's top holdings include dividend stalwarts like Cisco (NASDAQ: CSCO) and Home Depot Inc. (NYSE: HD).

With more than $63 billion in assets under management and a one-month average trading volume of about 11 million, SCHD is liquid and unlikely to cause investors to incur unexpected trading fees, making it ideal for more active traders. Additionally, the basket is not overweighted toward a small number of top stocks but reaches a limit of around 4.4% allocation for any individual company, ensuring it is broadly diversified.

VYM: Diversification and Value Stocks

Like SCHD, the Vanguard High Dividend Yield Index ETF (NYSEARCA: VYM) also focuses on large-cap U.S. stocks, but its approach is distinguished by the size of its portfolio and its emphasis on dividend yield. VYM has more than five times as many holdings as SCHD, with over 500 stocks in its portfolio. These firms are selected based on dividend yield and value characteristics.

Large-cap, dividend-paying value companies are often seen as highly stable, making VYM an excellent choice for a diversified dividend ETF for buy-and-hold investors. Its diversification is also a standout characteristic, making this fund even more attractive for investors looking for steady passive income.

VIG: Growth Stocks With Dividend Increase History

Another large-cap U.S. fund, the Vanguard Dividend Appreciation ETF (NYSEARCA: VIG), has a slightly different focus from VYM above. Rather than target stocks with an appealing value proposition, VIG seeks firms with the potential for future growth. Another key consideration for selection in VIG's portfolio is dividend payout growth. To be included, a company must have a history of at least 10 consecutive years of annual dividend increases.

VIG's portfolio of about 340 stocks is also widely diversified, although not quite as broad as VYM above. A couple of heavy-hitting tech stocks—Apple Inc. (NASDAQ: AAPL) and Broadcom Inc. (NASDAQ: AVGO)—are slightly more heavily weighted but still come in at under 5% of total assets.

An Array of Dividend ETFs

There are dozens of dividend stock ETFs currently available, giving investors no shortage of options. These funds offer a surprising array of different strategies, from broad-based approaches like SCHD above to a highly specialized focus on a single metric (such as dividend yield). They also differ in portfolio makeup, including multiple market capitalization categories, geographic specializations, and more.

The three ETFs above all share an expense ratio of 0.06%. While this is not the lowest fee across the dividend ETF space, it is highly competitive. Further, they all enjoy strong asset bases and performance histories, making each a good general dividend ETF. Investors looking for a niche dividend ETF product may wish to explore the space further, though they should be prepared to pay more for a targeted fund.