Tractor Supply shares currently trade at just 12.3x our 2008 EPS estimate and 11.8x our 2009 EPS estimate. This valuation is a discount to its historical P/E average of 23.5x trailing twelve month earnings. Given the difficult consumer spending environment, the stock may continue to struggle. However, we think TSCO shares discount below trend growth for the next few quarters.

RCII a Hold Heading Into Q2 Report

We maintain our Hold on Rent-A-Center (RCII) shares ahead of its second quarter earnings report scheduled for July 29. In the first quarter, Rent-A-Center reported better-than-expected results thanks to its restructuring efforts, but management kept its full-year EPS guidance at $2.17- $2.32.

Rent-A-Center's positive factors include its move into the payday loan business and strategic store closures, which should help improve the operating efficiency and cash flow generation of the largest company in the rent-to-own industry. Rent-A-Center's decision to open payday loan businesses, which offer check cashing, bill payment, and wire transfer services, is already paying off.

Despite the weak consumer spending environment, Rent-A-Center should be able to maintain its operating profit margin. The company's operating margin in 2007 was 10.4%. We expect its operating margin to climb to 10.8% in 2008 and 11.1% in 2009. What's more, the company's business model continues to generate stable cash flow.

Nevertheless, the company's positive factors are offset by negative factors such as high energy costs and difficulties in its core business. Rent-A-Center caters to low income customers, and those customers tend to be affected to a greater degree by higher energy and food costs. This will continue to act as headwind for RCII's results because its customers have less discretionary income to spend in its stores, pressuring the company's ability to meaningfully grow its sales and earnings.

RCII shares are trading at 12.8x our 2008 EPS estimate and 10.9x our 2009 EPS estimate. This valuation appears to be cheap, but we think it is a reasonable valuation that reflects the problems associated with the company's core customer base. Our target price of $25.50 is about 11x our 2009 EPS estimate, which is a slight premium to the company's long-term earnings growth rate.

Valuation Factored in for WFT

Weatherford International's (WFT)second-quarter earnings came on the weaker side due to a slowdown in its Canadian operations and cost overruns in Mexico. However, sales grew 23% year-over-year to $2.23 billion, boosted by strong international growth.

We believe that Weatherford will continue to experience sustained overall growth, aided by robust sales in the Eastern Hemisphere and Latin America and the emerging Canadian recovery. However, with Weatherford's premium valuation already incorporating these positives, we see limited upside from current levels and maintain our Hold recommendation unchanged.