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With Retail Stocks Under Pressure, TJX Could Be Ready to Run

Stock (Symbol)

TJX Companies (TJX)

Stock Price

$79

Sector
Retail & Travel
Data is as of
April 2, 2017
Expected to Report
May 15 – 19
Company Description
TJ_Maxx_LogoThe TJX Companies, Inc. (TJX) is an off-price apparel and home fashions. The Company operates through four segments: Marmaxx, HomeGoods, TJX Canada and TJX Europe. The Marmaxx and HomeGoods business offers family apparel, home fashions, accent furniture, lamps, rugs, wall decor, decorative accessories and giftware and other merchandise. The TJX Canada offers jewelry and home fashions. TJX Europe operates the T.K. Maxx and HomeSense chains in Europe. The Company operates approximately 3,461 stores in countries, including the United States, Canada, the United Kingdom, Ireland, Germany, Poland, Austria and Australia. Source: Thomson Financial
Sharek’s Take
David SharekTJX Companies has been a solid stock for decades, and may now be ready for another run higher. TJX is a powerhouse, with 1000 buyers in 10 countries around the world buying from 17,000 vendors in over 100 countries. The company traces its roots back to 1956 when the Zayre discount department store was founded. It opened its first T.J. Maxx in 1976, and eventually sold the Zayre brand to Ames in 1988.  Then the company was renamed to The TJX Companies, Inc and focused on T.J. Maxx. It sees growth opportunity from the current 3500 stores to 5500 stores, and its U.S. brands now include:

  • T.J. Maxx
  • HomeGoods, a chain of home furnishing stores it launched in 1992
  • Marshalls, which doubled TJX’s size when it was acquired in 1995
  • Sierra Trading Post, a off-price outdoor recreation store it launched in 1998.

TJX is the only major international off-price retailer in the world, operating:

  • Since 1976 in the U.S.
  • In Canada since 1990, where its Winners division is the leading off-price family apparel and home fashions retailer.
  • Since 1994 in the UK and Ireland, where its stores are named as T.K. Maxx.
  • Germany in 2007, Poland in 2009 and are launching stores in Austria and the Netherlands.

The company has my top safety rating and an A+ credit rating from Standard & Poor’s. The stock also has a yield of 1% and increased its dividend for 21 consecutive years (since 1996) at an average rate of more than 20% a year. TJX makes more than $3 billion a year in cash and spends more than half on stock buybacks. Store growth of 5% in addition to mid-single digit same store sales and a solid stock buyback program make it so TJX could grow profits around 10% a year long-term. This stock hadn’t done much the past year as profits grew just 6% due to higher wages and foreign exchange, but growth is expected to accelerate to 11% this year and I feel this will be a catalyst to push the stock higher. My Fair Value on TJX is 22x earnings or $86 a share this year and $93 next year. This is a tremendous stock to buy-and-hold and I feel now is the time for conservative investors to climb aboard. This stock has an Estimated Long Term Growth Rate of 10% per year in addition to the 1% yield.

One Year Chart
Last qtr’s profit growth was 4% and was negatively affected by 3% due to wage increases and 5% due to foreign currency. For this year the company expects wages hurting EPS by 2%, but accounting for share-based compensation should help EPS 2%, with F/X having a slightly negative impact on profits. Sales rose 6% last qtr with same store sales increasing 3% — both good numbers. Profits are expected to climb 4%, 10%, 10% and 17% the next 4 qtrs. 2017 profit estimates just jumped from $3.79 to $3.91 — that’s great!
Fair Value
TJX has sold for around 20x earnings since 2013. With profit growth looking to accelerate and estimates rising, my Fair Value P/E is 22. That makes the stock undervalued for the first time in years. There’s solid upside here for a stock with a high safety rating.
Bottom Line
TJX has been a wonderful stock for investors as its gone from $3 to $79 the past 20 years. Although growth won’t be that high in the future, the stock still should keep trending higher. This year the company will accelerate its store openings and with F/X and wage costs likely lower, TJX could return to double-digit profit growth. I will add this stock to my Conservative Portfolio, where it will rank 9th in the Power Rankings. I feel this is a great time to buy a quality core holding.
Power Rankings
Growth Stock Portfolio

N/A

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

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