Should You Buy the Dip in TJX Cos.?

Off-price apparel retailer The TJX Companies (TJX) reported robust top- and bottom-line growth in its last reported quarter. But is it wise to buy the dip in the stock now, given the intense competition in the space? Read on to learn our view.

Leading off-price apparel and home-fashions retailer The TJX Companies Inc. (TJX), in Framington, Mass., operates through four segments Marmaxx; HomeGoods; TJX Canada; and TJX International. The company operated a total of 4,689 stores in nine countries as of Jan. 29, 2022.

Closing yesterday's trading session at $63.90, the stock is currently trading 17.4%, which is below its 52-week high of $77.35, which it hit on Jan. 04, 2022.

By quickly adjusting and extending its online presence amid the pandemic-induced retail apocalypse, the company demonstrated its sturdiness. Moreover, its robust growth prospects and strong top-line growth in the recent quarter, driven by growth across all business segments, are projected to boost its performance in the coming months.

Here's what could shape TJX's performance in the near term:

Robust Financials

During its fourth fiscal quarter, ended Jan.29, 2022, TJX's net sales increased 26.6% year-over-year to $13.85 million. The company's net income grew 188.8% from its year-ago value to $940.20 million, while its EPS increased 188.9% from the prior-year quarter to $0.78. In addition, its overall open-only comp sales increased 10% over this period.

Strong Profitability

TJX's 1.6% trailing-12-months asset turnover ratio  is 56.2% higher than the 1.1% industry average. Also, its ROC and ROA are 86.1% and 88.6% higher than the respective industry averages. Furthermore, its $3.06 billion cash from operations is 1674.1% higher than the $172.34 million industry average.

Impressive Growth Prospects

The Street expects TJX's revenues and EPS to rise 8.9% and 11.6%, respectively, year-over-year to $52.87 billion and $3.18 in fiscal year 2023. In addition, TJX's EPS is expected to rise at a 12% CAGR over the next five years. Furthermore, the company has an impressive earnings surprise history; it topped Street EPS estimates in three of the trailing four quarters.

Consensus Rating and Price Target Indicate Potential Upside

Each of the 15 Wall Street analysts that rated TJX rated it Buy. The 12-month median price target of $80.47 indicates a 25.9% potential upside. The price targets range from a low of $72.00 to a high of $94.00.

POWR Ratings Reflect Solid Prospects

TJX has an overall B grade, which equates to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. TJX has a B grade for Quality. TJX's solid earnings and revenue growth potential is consistent with the Quality grade.

Of the 66 stocks in the A-rated Fashion & Luxury industry, TJX is ranked #25.

Beyond what I stated above, we have graded TJX for Growth, Value, Stability, Sentiment, and Momentum. Get all TJX ratings here.

Bottom Line

With shifting consumer preferences globally, TJX's ongoing efforts to adapt and improve its online platforms to provide better services to its clients, we believe the company is well-positioned to experience sustained growth in the coming quarters. In addition, favorable consensus price targets should further raise investors’ enthusiasm surrounding the stock. So, we believe the stock could be a great bet now.

How Does the TJX Companies Inc. (TJX) Stack Up Against its Peers?

TJX has an overall POWR Rating of B, which equates to a Buy rating. Check out these other stocks within the same industry with A (Strong Buy) ratings: J.Jill Inc. (JILL), Shoe Carnival Inc. (SCVL), and Caleres Inc. (CAL).

TJX shares rose $0.60 (+0.94%) in premarket trading Wednesday. Year-to-date, TJX has declined -14.73%, versus a -9.10% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.


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