Following my previous analysis of Ross stores, I decided to also review TJX Companies, the 800-pound gorilla in the industry. TJX currently trades at $42-43 Please refer to the Quick review explained post if you have questions on what I look for in this analysis.
1- Business Performance Risk (+) and Intrinsic retunrs (+)
TJX’s performance is very similar to that off ROST and is equally attractive, with the caveat of the FCF/sales ratio being a bit low for me, but also probably a function of the industry TJX is in.
In terms of intrinsic returns, the company gives a 1.3% dividend yield via a 20% payout. Factoring in a growth of 6% (using 20% of earnings at 30% ROE), TJX would still have 60% of its earnings to buyback shares for another 4-5% returns. All in we are getting to ~11% which is in line with ROST and while not great is not bad!
2- Balance Sheet Risk (+)
TJX carries a bit of debt on its balance sheet but still has an overall conservative capital structure. (Note: ROST carries less debt)
3- Valuation Risk (+)
TJX’s valuation is attractive, with an enterprise value at 10x Free Cash Flow and a P/E of 13x – very similar to ROST (10.5% cash return and 12.8x P/E). At this valuation level, TJX could be offering a good margin of safety to an investor
Conclusion
Comparing TJX to ROST it seems to me that both companies are extremely similar with very close dividends/buyback policies, business performance and even valuation!!!! At the margin, ROST carries a bit less debt and could grow slightly faster but is also a smaller player. I will try and perform a company analysis of TJX but will probably get to it in a few weeks and after having done that of ROST!
1- Business Performance Risk (+) and Intrinsic retunrs (+)
| Metric | Status |
| FCF / Sales | Last twelve months: 7.8%, at the high end of previous performance, fluctuating between 3% and 5% |
| ROE | LTM: 47% above the company’s 5-year average of 40%. |
| ROA | LTM: 18%; improved recently from the 12% - 15% the company delivered between 2000 and 2008. |
| Revenue Growth | The company has been growing fairly consistently at ~8-10% a year for the past 10 years, except for an almost flat year in 2010 |
| Cash distribution to shareholders | TJX’s dividend yield is 1.3% on a payout of 15%-20% The company has bought back about 17% of its stock over the last 5 years and has accumulated cash on its balance sheet |
In terms of intrinsic returns, the company gives a 1.3% dividend yield via a 20% payout. Factoring in a growth of 6% (using 20% of earnings at 30% ROE), TJX would still have 60% of its earnings to buyback shares for another 4-5% returns. All in we are getting to ~11% which is in line with ROST and while not great is not bad!
2- Balance Sheet Risk (+)
| Metric | Status |
| LT Debt / Equity | 0.3x |
| Current Ratio | 1.7x, above historic ranges of 1.3x to 1.5x |
3- Valuation Risk (+)
| Metric | Status |
| Cash Return | 10% |
| P/E | 13x, below the industry average of 15.7x and the company’s 5 year average of 15.7x as well |
Conclusion
Comparing TJX to ROST it seems to me that both companies are extremely similar with very close dividends/buyback policies, business performance and even valuation!!!! At the margin, ROST carries a bit less debt and could grow slightly faster but is also a smaller player. I will try and perform a company analysis of TJX but will probably get to it in a few weeks and after having done that of ROST!
