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TJX Companies – ‘Maxxing’ Out Your Total Returns

February 01, 2010 | About:
TJX is America’s largest off-price retailer of brand-name apparel and home fashions. TJX offers family apparel through its T.J. Maxx, Marshalls, A.J. Wright, Winners, and T.K. Maxx chains. They sell home fashions through its HomeGoods and HomeSense stores. TJX operates 2,600-plus stores in the United States, Canada, the United Kingdom, Germany, and Ireland.


In a recessionary world it’s difficult to find companies that have not only weathered the economic storm but that have prospered. TJX is one of those rarities.


FY 2010 (ended Jan 31, 2010) is expected to have come in at about $2.75 /share versus FY 2009’s $2.01 /share. Consumers appear to have traded down to the off-price stores from their higher priced competitors. This was the fourth straight year-over-year improvement in EPS and the 12th in the last 13 FY’s.


TJX pays a $0.12 quarterly dividend for a current yield of 1.25% at today’s quote of $38.45 /share. The dividend has been raised in each of the past 13 years.


Here are their per share numbers from continuing operations as reported by Value Line:




FY


Sales


C/F


EPS


Div.


B/V


Avg. P/E


2003


23.02


1.51


1.08


0.12


2.71


18.2x


2004


26.70


1.80


1.28


0.14


3.11


15.4x


2005


31.02


2.00


1.34


0.18


3.44


17.8x


2006


34.84


2.06


1.29


0.24


4.11


17.9x


2007


38.37


2.49


1.63


0.28


5.05


16.1x


2008


43.57


2.95


1.92


0.36


4.98


14.8x


2009


46.02


3.11


2.01


0.44


5.17


14.6x


2010*


50.00


3.95


2.75


0.47


5.90


11.9x


* FY 2010 data includes Q4 estimates


Consensus views for FY 2011 are now centered around $3.03 - $3.10 making the TJX multiple about 14x last year’s and< 12.7x forward projections. Those are very low P/E’s by historical standards (excepting the crazy market action from late calendar 2008 to early 2009.


TJX has a nice balance sheet and receives Value Line’s ‘A+’ rating for financial strength and VL’s top safety score. They also garner 90th and 95th percentile rankings for ‘stock price stability’ and ‘earnings predictability’ (with 100th being best). Their Beta is low at about 0.85.


If this year’s estimates are on the mark and the multiple rebounds to a still lower-than-normal 14x then TJX shares can rebound to about $42.50. That would represent a 10.3% rise from this afternoon’s price.


My target price seems attainable and perhaps a bit conservative. Standard and Poors sees ‘fair value’ as $44.60 and carries a $44 12-month goal price.


Overall these high-quality shares offer 10% - 15% total returns with above average safety. Not bad, but far from truly exciting.


Here’s a way to play these shares that can leverage that same move into a much bigger one-year return:






Cash Outlay


Cash Inflow


Buy 1000 TJX @ $38.45 /share


$38,450




Sell 10 Jan. 2011 $40 Calls @ $3.10 /share




$3,100


Sell 10 Jan. 2011 $40 Puts @ $4.90 /share




$4,900


Net Cash Out-of-Pocket


$30,450







If TJX moves up to $40 or better (+ 4.04%) by Jan. 21, 2011:


· The $40 calls will be exercised.


· You will sell your shares for $40,000.


· The $40 puts will expire worthless.


· You will have received $480 in dividends.


· You will have no further option obligations.


· You will end up with no shares and $40,480 in cash.





This best-case scenario would translate any > 4.1% move up into a net profit of $40,480 - $30,450 = $10,030.


$10,030/$30,450 = +32.9%


cash-on-cash that was achieved in just 11.5 months.





If TJX remains< $40 on Jan. 21, 2011:


· The $40 calls will expire worthless.


· The $40 puts will be exercised.


· You will be forced to buy another 1000 TJX shares.


· You will need to lay out an additional $40,000 in cash.


· You will have received $480 in dividends.


· You will have no further option obligations.


· You will end up with 2000 TJX shares and $480 in cash.





What’s the break-even on the whole trade?


On the original 1000 shares it’s their $38.45 purchase price less the $3.10 /share call premium = $35.35 /share (excluding dividends).


On the ‘put’ shares it’s the $40 strike price less the $4.90 /share put premium = $35.10 /share.


Your overall break-even would be $35.23 /share (excluding dividends) and $34.99 /share (including the yield).


TJX shares could fall about 9% without causing a loss on this trade.





Summary:


TJX offers well-defined, but unspectacular, upside over the next year or so. The buy/write combination can turn that 10% - 15% expected total return into a much more exciting 32.9% cash-on-cash profit while providing a 9% extra margin of safety from the trade’s origination price.





Disclosure: Author is long TJX shares and short TJX options.

About the author:

Dr. Paul Price
http://www.RealMoneyPro.com
http://www.TalkMarkets.com
http://www.MutualFunds.com

Visit Dr. Paul Price's Website


Rating: 2.7/5 (10 votes)

Comments

Dr. Paul Price
Dr. Paul Price premium member - 4 years ago






TJX Cos. sees 12% rise in same-store sales

NEW YORK (MarketWatch) — TJX Cos. Inc. said Thursday that its January sales at stores open at least one year rose 12%. Analysts, on average, had expected same-store sales to rise 7.8%, according to Thomson Reuters. Sales for the four weeks ended Jan. 31 rose 20% to $1.3 billion













  • THE STRIKING PRICE | TUESDAY, FEBRUARY 23, 2010

    Bulls Lining Up for a Bargain at TJX

    By STEVEN M. SEARS - Barrons

    Investors are betting the retailer’s shares will top $45 before July.

    DO YOU LOVE FINDING bargains at the store?

    If you answered “yes,” then consider the stock of TJX (ticker: TJX), proprietor of T.J. Maxx. The discount retailer operates Marshalls, HomeGoods, and A.J. Wright in the U.S.; Winners, HomeSense and Stylesense in Canada; and T.K. Maxx and HomeSense in Europe.

    TJX is scheduled to report fiscal fourth-quarter earnings before the stock market opens on Wednesday, and the options market is humming with bullish expectations.

    The stock has been peppered with speculative call buying in anticipation the company’s $39 stock pushes through $40 as investors respond to the earnings report. More than 1,000 July $45 calls also traded, suggesting some investors are positioning for the stock to trade above $45 before July options expire.

    To some investors, positioning for a modest advance will seem uneventful, but the true purpose of trading is focusing on ways to not lose money, and the risk-reward of TJX seems to meet those criteria based on options trading.

    Indeed, TJX’s options volume spiked Monday and trading volume was sharply higher than normal. On Monday, 5,633 TJX options traded, or 273% more than the 20-day average of 1,509, said Jim Strugger, MKM Partners’ derivatives strategist, in a premarket trading advisory that alerted clients to a surge in TJX call trading.

    Sharp increases in trading are typically associated with bullish expectations for a stock.

    At MKM Partners, analyst Patrick McKeever expects TJX will post earnings per share of 91 cents, matching analysts’ consensus estimate. He sees strong sales momentum continuing to define the stock, and believes operating margins also will continue to expand.

    “At just 12.7 times fiscal 2011 earnings of $3.10, the shares are inexpensive, in his view, relative to a historical multiple closer to 15 times,” his colleague Strugger said.

    Though the stock market is widely expected to only gain 4% to 6% in 2010, TJX is off to a great start. The shares are up about 8% this year, and are up 92% in the past 12 months.

    Momentum also seems to define analysts’ estimates. In the past month, 20 analysts have increased their earnings estimates. The fiscal fourth-quarter consensus EPS estimate is 91 cents, with a low estimate of 84 cents, and a high estimate of 98 cents.

    When the company reports, expect analysts to calibrate their earnings models and ratings, which could give an added boost to shares, provided everyone likes what they see in the numbers and what they hear on the postearnings conference call.

  • Dr. Paul Price
    Dr. Paul Price premium member - 4 years ago




    TJX Companies Tops Estimates

    TJX 41.70 +1.19

    The TJX Companies Inc. (NYSE: TJX - News) reported results for the fourth quarter of 2010 with earnings of 94 cents per share. Earnings were well above the Zacks Consensus Estimate of 60 cents per share and were up a 104% year-over-year.

    Net sales for the quarter grew 10.4% year-over-year to $5.9 billion. Consolidated comparable store sales increased 12% for the quarter. The company’s segments both in the U.S. and International reported positive sales and comparable store sales growth.

    The company’s segments in the U.S. such as Marmaxx, Home Goods and A.J. Wright reported net sales growth of 13%, 16% and 8% respectively. Internationally, TJX Canada and TJX Europe reported sales increases of 7% and 6%, respectively.

    Gross margin for the quarter expanded 411 basis points (bps) to 26.6% versus 22.5% in the comparable prior-year quarter.

    The company had cash and cash equivalents of $1.6 billion, long-term debt of $774 million and total shareholders’ equity of $2.9 billion for fiscal 2010.

    Concurrent with the earnings release, management provided guidance for the full fiscal and first quarter of 2011. In addition, the company also announced its intention of future investments and distribution of excess cash to shareholders. Earnings for fiscal 2011 are expected to be in the range of $3.06 to $3.20 per share.

    Consolidated comparable store sales growth is expected in the range of 1% to 2%. Additionally, the company is continuing its aggressive cost control initiatives, which will reduce expenses by at least $50 million to $75 million in fiscal 2011.

    For the first quarter of fiscal 2011, the company expects earnings to be in the range of 60 cents to 65 cents per share. The company expects consolidated comparable store sales growth of 3% to 5%.

    Furthermore, for fiscal 2011, the company expects to increase its capital spending by approximately $750 million. The company expects to repurchase $900 million to $1 billion worth of shares.

    The company also intends to increase its regular quarterly dividend to $0.15 per share, to be declared in April and payable in June. This increase is subject to the approval of the company’s Board of Directors and would represent a 25% increase.

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