Car Parts, Farm Goods Offer Latest Read on Consumers

Merchandise at a Tractor Supply Co. store in Petaluma, Calif. (Justin Sullivan/Getty Images)

Key Points

• Citi analyst Steven Zaccone says hardline retailers have lagged the S&P 500, and lowered expectations is a theme for the upcoming earnings season.
• Zaccone is upbeat on Tractor Supply, predicting the company will beat third-quarter expectations and modestly raise its full-year guidance.
• Zaccone is bullish on O’Reilly Automotive, noting the company benefits from people keeping cars longer and increased automation.

When it comes to winning retailers, at least one analyst thinks trucks and tractors are the way to go.

Although most retailers report much later in the season than other companies, some are up to bat this month, particularly those that aren’t as dependent on the holiday shopping season. They provide another glimpse into consumer health ahead of retailers’ most crucial selling period.

Although Americans haven’t slowed their spending, investors are still feeling spooked about cautious earnings commentary from companies like Walmart , meaning the State Street SPDR S&P Retail exchange traded fund and State Street Consumer Discretionary Select Sector SPDR ETF are both down for the year.

In fact, “fundamentals have been resilient, but ‘lowered expectations’ is a theme for the upcoming earnings season, says Citi analyst Steven Zaccone in a note Tuesday. His coverage group of hardline retailers has lagged the S&P 500 , and their valuations “now sit comfortably below 5-year averages for nearly all our coverage,” but he still thinks investors have to be selective.

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He is most upbeat about Tractor Supply Co. He has a Buy rating on the shares and raised his price target by a dollar to $38, writing that the company’s “foundational turnaround is underway.” He predicts Tractor Supply will beat expectations in the third quarter, delivering same-store sales growth of 0.3%, and “modestly” raise its full-year guidance.

Zaccone has a Buy rating and $106 price target on O’Reilly Automotive, as he sees it as the best auto parts operator, and thinks it too can deliver better-than-expected same-store sales growth of 5.5% in its quarter. Not only is the company benefitting from people keeping their cars longer but its ongoing automation and increased ‘do it for me’ (DIFM) demand over DIY.

He is also bullish on Boot Barn, although he cut his price target to $180 from $205. “Boot Barn has seen growth moderate on…high gas prices and fashion tailwinds easing, but shares have a favorable long-term risk/reward,” he writes.

By contrast, Zaccone has a Neutral rating on Floor & Decor, and he lowered his price target by $10 to $49. Although he thinks the company’s quarter will be largely in line, it’s “hard to fight higher mortgage rates,” which have stymied the housing market and will remain an overhang for the shares.

He’s also sidelined on Valvoline (which will report in November). Again he thinks the quarter itself will be fine but as long as the Iran War impacts shipping through the Strait of Hormuz, it will be difficult for the company to move margins higher, and could lead to initial fiscal 2027 full-year guidance below expectations.

There are still reasons to believe in the American consumer, as retail sales and credit-card data show they aren’t tightening their belts too much. These earnings reports could show that at least some retailers are still worth browsing.

Write to Teresa Rivas at teresa.rivas@barrons.com

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