When Great Isn't Good Enough

 | Oct 25, 2012 | 2:44 PM EDT
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Anything that was priced even remotely to perfection simply couldn't deliver IF it decided to rein in the analysts' expectations even a tad.

Let me demonstrate by using the curious case of Tractor Supply (TSCO), the retailer that caters to farmers and gardeners with lower-priced, high-quality targeted product, something that only mom-and-pop feed-and-grain currently offer. TSCO takes it to them because it can buy the goods cheaper than they can -- it has critical mass -- and sell them well underneath the mom-and-pop feed-and-grain outfits can offer. Consider TSCO as a Home Depot (HD) against those local merchants that have dominated hardware sales.

What was Tractor Supply's offense? Why is it down almost $2? What was it's crime? First it beat earnings estimates and second it raised forecasts.

But it didn't beat enough and it didn't raise enough. The earnings didn't beat the whisper, even as TSCO traditionally has. And it didn't raise forecasts above the posted estimates and instead reined them back.

If your stock is flat or down for the year, than that combination is a prescription for a gigantic leap forward.

But if your stock is up 33%, that's just not enough to do the job. It's disappointing enough to send the stock down.

You can put many stocks through this exact same prism. Under Armour (UA) beat and raised in a terrific fashion if the stock were flat for the year. But the stock's up 50%, for heaven's sake.

That meant you had to see a number that was so strong that it would have been unrealistic without a particular kind of weather and a brand new, sold out product line.

Or how about this ultimate indignity, Regeneron (REGN), long a fave of mine. Regeneron has a better mouse trap, a product for macular degeneration of the eyes that needs to be shot into the eye once a month. It's really expensive, but the alternative is a drug that has to be shot once in the eye every week. Which would you prefer, 52 shots in the eye or 12 shots in the eye?

Now, it gets better. The competitive drug is often cut into different vials because otherwise it is too expensive for doctors to avoid.

But the FDA has said that the competitor might cause meningitis. So, you can presume that few patients or health maintenance organizations want to save money by forcing the patient to get stuck every week, not every month, even as there is a risk of meningitis.

So, what happens? Regeneron reports $1.85 a share when the Street was looking for $1.15. Revenues came in at $427 million when the street expected $350 million. That's the gold medal of the beat-and-raise prize competition.

So how did it do? It's basically unchanged after a nice move up and down in the last 24 hours. How is that possible? Simple. Regeneron is up an astounding 180% for the year.

You couldn't have had a bigger beat.

It could not have mattered less.

And that's the new gauntlet we all have to go through to own the best of the best. 

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