Off-price apparel and home fashion retailer The TJX Companies, Inc.’s (TJX) business was negatively impacted by the COVID-19 pandemic, leading to temporary store closures. The Framlington, Mass.-based concern closed stores for roughly 3% of its fiscal second quarter compared to 31% in its first quarter. However, only 40 of its Australian stores are closed now, and all stores in the United States, Canada, and Europe are open.

The stock has gained 11.2% in price over the past month and 12.7% over the past three months to close yesterday’s trading session at $75.81. It is currently trading just 0.5% below its all-time high of $76.16, which it hit on August 24.

TJX could continue to benefit by capitalizing on “revenge spending” and offering a ‘Treasure-hunt’ like shopping experience. The company should see more customers returning to its stores.

So, here’s what we think could influence TJX’s performance in the near term:

Robust Financials

TJX’s net sales increased 81.1% year-over-year to $12.08 billion for its fiscal second quarter, ended July 31, 2021, driven by the solid performance of its home business across all divisions. In addition, the company’s open-only comparable store sales increased 20% year-over-year in the quarter. Its net income came in at $785.68 million, versus  a $214.22 million net loss in the year-ago period. Also, its EPS came in at $0.64 compared to an $0.18  loss per share in the prior year's quarter.

Returning Cash to Shareholders

TJX returned $614 million to shareholders in the second quarter by repurchasing $300 million of its stock and paying $314 million in shareholder dividends. It declared a $0.26  per share quarterly dividend, payable on September 2. Ernie Herrman, TJX’s CEO and President said, “We see many opportunities to capture additional market share in the future, and with our very strong balance sheet and ability to generate cash flow, we are very pleased to again be in a position of significantly investing in our business and returning substantial cash to our shareholders.” Also, the company now expects to repurchase roughly $1.25 billion - $1.50 billion of its stock in its fiscal year 2022, an increase of $250 million versus its prior plan.

Favorable Analyst Estimates

Analysts expect TJX’s revenue to increase 44% in the current year and 7% next year. The company’s EPS is expected to increase 741.9% in its fiscal year 2022 and 21.5% in fiscal 2023. Furthermore,  its EPS is expected to grow at a 126.2% rate per annum over the next five years.

In addition, Wall Street analysts expect the stock to hit $85.80 in the near term, which indicates a potential 13.2% upside. Of the 15 analysts that have rated TJX, 13 rated it Buy.

POWR Ratings Show Promise

TJX has an overall B rating, which equates to a Buy in our 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 an A grade for Sentiment, which is in sync with favorable analyst sentiment.

The stock has a B grade for Quality. This is consistent with TJX’s 9.54% trailing-12-month levered FCF margin, which is 28.6% higher than the 7.43% industry average. In addition, its trailing-12-month ROCE and ROTA of 45.39% and 8.73%, respectively,  are also higher than the 17.13% and 5.60% industry averages.

In addition to the POWR Rating grades we’ve just highlighted, we’ve also rated TJX for Growth, Value, Momentum, and Stability. Get all the TJX ratings here.

TJX is ranked #21 of 64 stocks in the A-rated Fashion & Luxury industry.

Click here to checkout our Retail Industry Report for 2021

Bottom Line

Operating roughly 4,500 stores in nine countries across three continents, TJX has made a name for itself in a niche area in the retail space. It is currently trading above its 50-day and 200-day moving averages of $69.34 and $68.09, respectively, indicating an uptrend. We expect TJX  to keep gaining as the company  continues to witness increasing demand for its products. So, it could be wise to add the stock to one’s  portfolio now.

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

TJX has a grade of B in our proprietary rating system. One may also want to check out these other stocks within the same industry with an A (Strong Buy) grade: Shoe Carnival, Inc. (SCVL), Genesco Inc. (GCO), and Movado Group Inc. (MOV).

TJX shares fell $0.28 (-0.37%) in premarket trading Thursday. Year-to-date, TJX has gained 12.24%, versus a 20.83% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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