The Rally in TJX Companies Stock is Far From Over

Key Points

• TJX Companies had a strong quarter, impressing the analysts now raising their price targets. 
• Upside potential is supported by a robust capital return, which includes share-reducing buybacks.
• Guidance was raised and may be overly cautious given the consumer and marketplace trends.  

TJX Companies NYSE: TJX stock price surged following the Q2 earnings release because its quality operations and market conditions combined to drive better-than-expected results, leading to improved guidance. The reason it will continue to rise is the analysts. The analysts' response to the news is overwhelmingly bullish, leading this stock to higher highs because off-price retail is hot. 

MarketBeat.com tracked 15 revisions within the first 24 hours of the release, a significant figure in such a short time because analysts who haven’t made revisions in more than a year are getting back in action. Citigroup downgraded to Neutral, taking a more cautious stance, but that is not surprising given the stock price increase over the last two years; it is up more than 100%. 

Citigroup’s downgrade is offset by a price target increase, which aligns with the new consensus. The range of targets is $115 to $140. The $115 low is an outlier set by Wells Fargo; 10 or 66% of the targets run from $130 to $140 with a group average of $132. The $132 consensus is about 8% above the post-release closing price, up nearly 15% in a single day, and two analysts agree on the $140 target. Investors can look forward to this market advancing to the high end of the range. 

TJX Companies: Consumers Flock to Stores and Drive Growth

TJX Companies' results are strong. The company produced 6% top-line growth, exceeding the consensus estimate by 115 basis points, with strength driven entirely by ticket volume. The company reports growth in all segments, led by a 5% comp at Marmaxx, the largest. Systemwide comps came in at 4% and were compounded by an increased store count. The company opened 29 new stores in the quarter, bringing the total to over 5,000 globally. 

The margin news is also good, exceeding the company’s guidance and analysts' consensus estimate. The company reported a slight increase in gross margin and a 50 basis points gain in pretax earnings, which resulted in a 13% increase in GAAP EPS. The $0.96 in GAAP EPS is 430 bps better than expected, aided by share repurchases. 

Guidance is a primary cause for analysts' enthusiasm. The company’s Q3 guide aligns with consensus, but the full-year figures include a wider margin and increased profit outlook. The company expects $4.11 in GAAP earnings at the midpoint, above consensus and possibly cautious given the trends. Inventory is down slightly compared to last year and at healthy levels supported by a favorable environment. In CEO Ernie Hermann’s words, “excellent buying opportunities in the marketplace” set the retail business up for success going into the holiday shopping season. 

TJX Companies Pays You to Own It

Among the critical details in the TJX Companies report are cash flow and capital return. The company produced a cash-flow positive quarter, increasing its cash position while sustaining robust capital return and balance sheet health. The capital return includes dividend payments worth 1.25% annually and share repurchases, which reduced the count by 1.5% over the last year.

The balance sheet highlights include increased cash, steady liability, debt levels, and a 17% increase in equity. Leverage remains low at roughly 1.5x cash and 1.1x equity, leaving the business in a fortress condition. 

The price action in TJX stock is bullish. The market advanced strongly following the release, creating a large green-bodied candle on the weekly chart. Assuming the market finishes the week at this level or higher, the signal amounts to a strong buy when paired with the indicators.

MACD and stochastic both show bullish crossovers that align with the trend. The only caution is that both indicators are tracking in the overbought range, but that condition can persist indefinitely in a bull market.