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TJX Companies (TJX): Zacks Rank Buy

Zacks Equity Research

The TJX Companies, Inc. (TJX) has watched 15 of 16 total estimates move higher in the past month for this fiscal year, thanks to a solid fiscal first quarter and impressive same-store sales growth for May.

The Zacks Consensus Estimate has moved up by 1.3% to $2.42 for the fiscal year ending January 2013 and by 0.7% to $2.69 for the fiscal year ending January 2014.

Shares of this leading off-price retailer reached a new 52-week high of $42.81 on May 16, just a day after the quarterly announcement. The stock became a Zacks #2 Rank (Buy) on May 31, 2012 on the heels of an 8.0% increase in same store sales for the month.

Solid First Quarter Results

On May 15, 2012, TJX Companies reported fiscal first quarter adjusted earnings of 55 cents per share, which moved past the Zacks Consensus Estimate of 54 cents and shot up 41% from last year. Earnings were also well above the original company guidance of 45 cents - 47 cents.

Over the past seven quarters, TJX Companies has surpassed estimates four times, matched twice and missed once.

Total net sales during the quarter grew 11.0% year over year to $5.8 billion, which topped the Zacks Consensus Estimate of $5.7 billion. Strong same store sales (sales at stores open at least a year) and new store openings in the quarter boosted the top line.

TJX Companies' consolidated same-store sales increased 8.0% in the quarter driven by significant increases in customer traffic in all its divisions across the U.S., Canada and Europe. TJX Companies has been witnessing positive comparable-store sales every month for a year now. Off price retailers like the TJX Companies are well positioned to gain significantly during economic downturns, when consumers tend to become more price-sensitive and prefer to buy discounted merchandises.

Consolidated pre-tax margin expanded 220 basis points from the prior-year quarter to 11.8% driven by improvement in gross margins and expense leverage.

In the first quarter of 2013, the company increased its dividend by 21%. This is the 16th consecutive year for which the company hiked its quarterly dividend with a compound annual growth rate of 23% over that same period.

Guidance Raised

In its first quarter earnings conference call, the company raised its adjusted earnings guidance for fiscal 2013 to between $2.27 and $2.37 from original expectations of $2.21-$2.31. The guidance includes an expected benefit of 7 cents per share from the extra or the 53rd week in the fiscal 2013 calendar, excluding which the guidance represents an 11% to 16% year-over-year increase.

The Zacks Consensus Estimate for fiscal 2013 is $2.42, higher than the company's guidance range. Moreover, the company expects consolidated comp store sales growth of 2% to 3% for fiscal 2013 compared to the original guidance of 1% to 2%.

An Attractive Valuation

TJX Companies currently trades at a forward P/E of 17.04x, reflecting a 6.2% discount to the peer group average of 18.17x. The stock looks attractive on a return on equity (:ROE) basis as well. It has a trailing 12-month ROE of 51.14%, which is above its peer group average of 18.7%. This implies that the company is utilizing its assets more efficiently than its peer group in generating earnings.

Chart Echoing Strength

Shares of TJX Companies rose consistently since September 2011 and soared to its 52-week high of $42.81 after first quarter results. The stock has been trading close to its 52-week high since then. Moreover, the stock is currently above its 50 and 200-day moving averages, which stand at $40.69 and $33.64, respectively. In fact, the stock has been consistently trading above its 200-day moving average since early January 2011. Also, it has remained above the 50-day moving average since late November 2011.

Volume is fairly strong, averaging roughly 5032K daily. TJX Companies, which competes with Kohl's Corp. (KSS) and Target Corp. (TGT), has outperformed the S&P 500 over the past six months. The year-to-date return for the stock is 27.42% compared with the S&P 500's return of 1.62%.

Based in Framingham, Massachusetts, TJX Companies is a leading off-price retailer in the United States and owns some popular retail stores like T.J. Maxx, Marshalls, Homegoods, Winners, Homesense and T.K. Maxx. It operates more than 2900 stores across U.S., Canada and Europe, offering a wide range of branded and designer family apparels, home fashion and other products. This merchandise are offered at prices generally 20% to 60% below department and specialty store prices, targeting principally the middle to upper middle income consumers. The company has a market cap of $30.5 billion.

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