Is The Rally In The TJX Companies Stock Over?

Key Points

• The TJX Companies is moving lower after mixed guidance. 
• A surprise charge cut into the bottom line but business remains solid. 
• Margins improved versus last year and the dividend is safe for 2023. 

If you are wondering if the rally in the TJX Companies NYSE: TJX is over the answer is probably not. The bigger question is what will happen between now and the following new high, and that is a consolidation. The company’s Q4 results and outlook for 2023 support the current price action and the idea that the stock will trend higher.

While there are some mixed messages in the report the takeaway is that business is sound, cash flow is solid, capital returns are forthcoming and growth is still on the table. In this light, the price pullback is a buying opportunity, not a time to sell.

The TJX Companies Falls On Mixed Results 

The TJX Companies had a solid quarter, but an unexpected charge cut the bottom line. The company reported $14.52 billion in net revenue for a gain of 4.8% over last year that, beat the Marketbeat.com consensus by $0.450 basis points. That’s 300 basis points of outperformance due to strength in US comps and in the Marmaxx segment of the business. Marmaxx sales grew by 7% and were offset by a 7% decline in Homegoods. 

The good news is that margins expanded versus last year at the gross and operating levels. The bad news is that an unexpected shrink charge cost the company 110 basis points of margin and helped to offset the top-line strength. Clearance activity also helped to pressure the margin, which left the GAAP EPS at $0.89 as expected compared to the top-line strength. 

The company generated strong cash flows in 2022 despite the bottom-line weakness in Q4. The cash flow allowed the company to increase the dividend by 12%, increasing the yield to 1.6% and the repurchase program. The repurchase program was increased by $2 billion to over $3.0 billion, and there are plans to use up to $2.5 billion in 2023. That’s worth 2.8% of the market cap to investors. 

The company is expecting to see business momentum continue in 2023. The guidance for Q1 is a little weak but forecasts growth while the FY guidance is more favorable. In both cases, the company expects 2-3% topline growth, but FY earnings are expected to $3.29 at the low end of the range compared to only $3.14 expected by the Marketbeat.com consensus. Regardless of growth, the dividend and capital plans appear safe. The TJX Companies are paying only 38% of earnings in dividends, and it has a well-managed balance sheet with low leverage. 

The Analysts Like The TJX Company Style 

The analyst's sentiment toward The TJX Companies is clear; they like and buy it. The Market beat.com consensus rating is a Moderate Buy with a price target that is moving up in the near term and relatively flat versus last year and last quarter. This shows a steady sentiment in the face of shifting trends and economic outlook, which is good for investors. The best measure of that stability is the stock beta which comes in at only 0.88 relative to the S&P 500. 

The chart is favorable to investors looking to get into this name. An uptrend has the stock trading above pre-pandemic and pandemic highs but pulling back to what should be strong support at the 150-day moving average. Assuming the market confirms support at this level, this stock should continue its uptrend and set new highs later in the year. If there is no support at the 150-day EMA, a fallback to the $65 level is possible.