The TJX Companies (TJX, Financial) operates as an off-price apparel and home fashions retailer in the United States and internationally.
From $74.3 per share on Nov. 5, the stock has declined by 13.8% to $64.2 in less than two weeks. While the retail sector has witnessed some pressure, the sector will bounce back once the festive season shopping picks up. This makes The TJX Companies an interesting stock to consider with the company’s 3Q16 results also expected on Nov. 17.
Therefore, the first reason to be bullish on the stock is the festive season demand that is likely to prop up sales in December and January. In other words, robust results in the coming quarters should support stock upside. The University of Michigan preliminary November sentiment index indicates that U.S. consumer confidence increased for the second month, and this provides much needed hope for the retail sector. If the consumer confidence remains robust, festive spending will be high also considering the point that low inflation has positively impacted consumer disposable income. Therefore, the near-term correction is an excellent opportunity to buy the TJX Companies.
Coming to the company’s results for 1H16, The TJX Companies reported EPS of $1.49, representing an increase of 8% as compared to 1H15 EPS. Importantly, the company’s comparable store sales growth was robust at 5%, and it was entirely driven by an increase in consumer traffic. This is indicative of brand pull than increase in comparable store sales through price increase. Even for FY15, the company had recorded EPS growth of 12% as compared to FY14. The point that I am trying to make is that The TJX Companies is on a decent growth trajectory, and the momentum is likely to sustain in the festive season.
From an expansion perspective, the company is expanding on the brick and mortar growth as well as the ecommerce growth. The TJX Companies currently has 3,455 stores, and the company believes that there is an opportunity to expand it to 5,475 stores in the coming years. An important point to note is that the company is expanding into new regions with expansion in Austria and likely expansion in The Netherlands. The company is also planning acquisition of Trade Secret in Australia by the end of 2015. In other words, expansion in existing geographies, expansion in new geographies and ecommerce growth are the three factors that will contribute to the company’s revenue momentum in the coming years.
The TJX Companies has been a value creator and has continued to expand shareholder returns through dividends and share repurchase. The company currently offers dividend of 84 cents per share; dividend growth should be sustained as expansion in new markets coupled with comparable store sales growth provides bottom-line growth traction. From current levels, it is also likely that The TJX Companies will trend higher in the next two to three months and I would not be surprised if the stock trends 10% to 15% higher from current levels. This makes the stock interesting in the near term as well as for the long term.
In conclusion, The TJX Companies is trading at interesting levels, and fresh exposure to the stock can be considered. The only risk in the near term is the prospects of a rate hike in December 2015. While a rate hike is unlikely to have any impact on the festive spending spree, broad markets can correct, resulting in depressed sentiments across sectors. However, there will be no rate hike in 2015, and markets are likely to have a good end to the year.
Disclosure: No positions in the stock
