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The TJX Companies: Strong 2016 Outlook for Top and Bottom Lines

Mark Jonker

The TJX Companies Should See Earnings Improve in 2016

(Continued from Prior Part)

Sales growth and margin improvement expected

The TJX Companies’ (TJX) sales are expected to grow by 6.0% in the calendar year 2016, which, combined with an improvement in operating profit to 6.0% from around 1.0% in 2015, should have a highly positive effect on the bottom-line profitability of the company. Wall Street expects the adjusted EPS (earnings per share) of the company to increase by 8.0% in calendar 2016, compared with the 5.0% growth seen in calendar 2015.

As can be seen from the above chart, both the sales and adjusted EPS are expected to grow in calendar 2016 as well as 2017.

Valuation multiples

The current PE (price-to-earnings) multiple of The TJX Companies (TJX) is 21.9x, which means that investors are paying 21.9 times the last four quarters’ EPS to acquire the stock. When compared to the industry as a whole, this is slightly expensive, considering that the industry (XLY) is trading at current PE multiple  of 19.3x as of December 29, 2015. Peers Ross Stores (ROST), L Brands (LB), and Urban Outfitters (URBN) are trading at 22.5x, 26.3x and 13.1x, respectively. The forward PE multiple of The TJX Companies (TJX) is 20.6% due to around 6% growth expected in EPS in the next four quarters.

The current PS (price-to-sales) multiple of The TJX Companies is 1.6x, while the industry is trading at average PS multiple of 1.0x. Peers Ross Stores (ROST) and L Brands (LB) are trading at PS multiples of 1.9x and 2.4x, respectively. In the next article, we’ll have a look at the technical indicators.

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