Year Founded: 1938
Tractor Supply is the largest farm and ranch retailer in the United States, operating over 2,000 stores in 49 states. The company has a unique niche in specialty retailing focused on serving rural lifestyle consumers, tradesmen, and small businesses. Tractor Supply tends to focus on markets that are typically overlooked by “big box“ competitors with a product assortment geared towards traditional and hobby farmers.
Know What You Own
We added Encompass Health to the Jensen Quality Value Strategy in October 2017 due to its attractive valuation, competitive advantages, and growth prospects. Notably, EHC provides a nondiscretionary service that we believe is likely to provide portfolio stability in most market environments.
The company’s primary competitive advantages include a market-leading position in an industry with relatively high barriers to entry, IT-enabled solutions that provide margin expansion and growth opportunities (e.g., clinical and operational software), and a solid management team with a track record of consistent execution despite numerous industrywide regulatory changes.
Over the past decade, Encompass Health has proven its ability to provide cost-efficient, quality care, treating higher acuity patients at a lower average cost, with higher discharge and lower readmissions rates in comparison to its peers. This is especially significant as a majority of EHC’s revenue stems from Medicare/Medicaid reimbursement based on the quality and cost of care.
We believe Encompass Health has attractive, long-term growth prospects resulting from the demographic tailwinds of an aging population, industry consolidation and capacity expansion. Additionally, clinical collaboration efforts between IRF and Home Health & Hospice services have driven growth as patients typically require home health care after leaving a facility.
Recently, EHC has been out of favor due to pandemic-related challenges, including the inability to conduct home health visits and pauses in elective procedures as hospitals prioritize care for emergent needs. The company has also been impacted by industrywide nursing shortages, which resulted in increased operating expenses, pressuring profitability. At Jensen, it is our belief that these challenges are shorter-term in nature and we expect demand for services to return to pre-pandemic levels or higher. The Jensen Quality Value Strategy has opportunistically added to its position over the past year to capitalize on its stock price weakness, in the belief that the company’s competitive advantages and growth drivers remain intact.
1 Centers for Medicare and Medicaid Services (CMS)
Strategy holdings are subject to change and should not be considered recommendations to buy or sell any security. For a listing of this Strategy’s current holdings, please click the link below.
The discussion of the specific security identified in this article is solely intended to illustrate the application of our investment approach. Our views expressed herein are subject to change and should not be construed as investment advice and are not designed or intended as a basis or determination for making any investment decision for any security. The specific security identified is taken from a representative account of the Jensen Quality Value Composite and does not represent all of the securities purchased and sold for the Strategy. Our discussions should not be construed as an indication that an investment in a security has been or will be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of any security discussed herein. This information is current as of the date of this material and is subject to change at any time, based on the market and other conditions. Past performance is no guarantee of future results.
Certain information contained in this material represents or is based upon forward-looking statements, which can be identified by the use of terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue”, or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of a client account may differ materially from those reflected or contemplated in such forward-looking statements.
Jensen Investment Management, Inc. is an investment adviser registered under the Investment Advisers Act of 1940. Registration with the SEC does not imply any level of skill or training.
© 2022 Jensen Investment Management.