Analysis of TJX Companies, Inc.

T.J. Maxx is probably one of my favorite frugal stores to shop at.  I recently added 2 dress shirts to my collection that now is at 24 shirts.  These bargain shirts I purchase are always on the clearance rack and have always cost $10 or less.  Some of my favorites are more than a decade old and are still going strong.  If a button pops off I just sew it back on and keep it going.  My wife also gets kids clothes are other apparel off of their clearance racks ever season to keep the kids clothed.  She was also looking at purses and mentioned several high end purses for just a little over $100.  Wow compared with normal retail of $300+ that is truly a bargain.  I have heard other bloggers talk about it so finally decided to take a look at it.

The TJX Companies, INC is an off price retailer of apparel and home good (think towels and small - medium size d├ęcor.)    They operate my favorite store, T.J. Maxx, Marshalls and the HomeGoods stores in the US and other stores in Canada and Europe.  While I have shopped at all three I do prefer TJ.  While this is not high in my ranking (144 out of 550 Triple C champs) it is not in the tail end either.  Most likely I have looked past this is the low yield of 1.32 percent.

As always I am short on time and just happen to be off today to do a little R&R with the kids before they go back to school.  I worked on this some last night and hope to finish up this morning.  My goal is to keep the time spend on blogging to around an hour per post so I can maximize the time with my family.  Let's take a look at my ranking categories and see how TJX looks.

Value
The current P/E for TJX is sitting around 18.  That usually lines up for companies I am looking at with a P/E below 20.  They are doing pretty good compared to the rest of the Retail/Wholesale industry that is sitting around a ratio of 86.3.  The TTM price-to-sales is at 1.35 for July.  This is pretty good for a retailer and I like to see as close to 1 as possible.  Sales are pretty good in my book if it is below 2.  The TTM is a good metric to look at in cyclical industries such as this as it will include the good months (Christmas season) and the slow months.  Future estimates are also lining up with a buy signal as they will be dropping down into the 14 range for this year and next.

Growth
The 5 year growth rate is pretty awesome at 20.80%.  This and other growth factors puts it in the top 100 for this category.  Although it just squeaks in at 92.  The rest of the industry has been dragging with a -10.13%.  But looking at the 1 year growth rate for compared to the industry it is a pretty level field at 10.9% for TJX and 10.14% for the industry.  It might be slowing down a bit has it has missed earnings for both quarters this year.  Prior to this year it beat or met yearnings for several years back.  Earnings-per-share (TTM) is at 2.86 currently.  This isn't bad and they (ShareBuilder data) are estimating it should be 11.40 for the end of their current fiscal year.  That is stellar so we will have to watch the news.  What is odd is then next year is back down to 3.15 EPS.  That does set off my spidy senses.  If anyone knows why let me know.



Quality
Quality is ranking pretty high at 384.  The big driver of that ranking is the most recent quarter Price/Book ratio of 8.72.  That is pretty high but since this is the first Retail-Apparel company I have looked at, this may be the norm.  I usually don't consider companies above 2 so I would have to do more research to determine if this is fair.  The debt-to-equity ratio is looking good though.  At .30 that tells me they are not carrying much debt (but there still is some).   On Yahoo it says the Total D/E is 29.75.  That is kinda confusing for me as it doesn't match the U.S Dividend Champions spreadsheet unless the spreadsheet is the ratio number and Yahoo's is a percent.  Ug so much data.

Yield
This contender is pretty low at .70 cents/share or a 1.30% yield.  Unfortunately this is way below what I need to jump start my portfolio.  The Payout ratio is at 20% which is well below the 75% cap I use.  So there is plenty of room for double digit dividend growth (if they choose).  With a five year dividend growth rate of 21.2 percent they most certainly are choosing.  If they keep that up then after 9 years or so it will have surpassed something of my taste (3% yield) that only grows at 10%.  I think sales would have to stay brisk for an extended period of time.  Would a hiccup in the recovery  cause sales to drop or would more people flock to stores like these for bargains?


Overall
Out of the new 550 dividend companies I look at TJX comes in at 149th place.  Not bad but not what I normally look at (top 100).  With a sales and earnings report scheduled for Tuesday, August 19, 2014 all of this may change.  A bad report may drop the price and make the entry price more consumable for me.  Plus a good drop would boost the yield and with a growth rate like that I could definitely settle in for the long term (assuming it stays that way.)


Thanks for reading and if you have any other retailer I should be looking at let me know.


Full Disclosure: I do not own this stock.

Jeans image courtesy of By Worakit Sirijinda/FreeDigitalPhotos.net

Comments

  1. Great analysis! I own shares in TJX and think it's a fantastic company. I'm sure it'll be double the size 10 years from now. Thanks for the write up.

    Cheers.

    ReplyDelete
  2. Hi DFG,
    I agree with Henry - great job on the analysis.

    I'm probably reading the Sharebuilder EPS page wrongly, but I think they're showing an estimated 3.15 for the end of this year, with 3.56 for next year. Last year's estimate was apparently 11.4 and I've no idea where that came from so I'm guessing it's an error - Morningstar shows they had 2.55 in 2013-01.

    As for yield they kept increasing their dividend payments through the recession in 2002/3 so they must be doing something right!

    Like you though, their yield needs to be higher before I'd consider them.

    Best wishes!
    -DL

    ReplyDelete
    Replies
    1. Thanks for the assist DL. I am having some trouble with ShareBuilders data. I don't really want to have to go to multiple sources to double check everything but I can hear all the bloggers out there "do your homework". So I guess should.
      Thanks,
      DFG

      Delete
  3. Thanks for sharing this pretty detailed analysis of TJX. I know that for a long time this stock has been a great performer and is dividend friendly. As a retailer I like it better than TGT but in general I'm not too hot on any retailers long term.

    ReplyDelete
  4. This is definitely a tough industry to be in. If they can climb their way up the dividend achievement ladder that is a good sign they will endure. So far TJX and TGT are survivors.

    ReplyDelete
  5. Good analysis. I did own TJX and sold it in Feb (I am a fool!) The earnings were stellar this week - it had a nice pop. I am not really sure about retail. I can't quite understand what is going on with the consumer. Part of what I liked about TJX was its appeal to the new frugal mindset. I think that this is a transitional time for retail - no doubt there will be some big winners because I think that there is pent up demand - but not really clear who the winners will be. Consumers can be a fickle bunch.

    ReplyDelete
    Replies
    1. Hi May! Agreed and any slight change in the economy may swing people either way.

      Delete
  6. That's some interesting stuff going on with the EPS. TJX and ROST are great for the growth but the current yield is pretty lackluster. With a long term horizon it works pretty well though. Another company I need to look into more. Thanks for the analysis.

    ReplyDelete
    Replies
    1. Hi PIP, Yeah this industry seems to have a lot of ups and downs. I think Dividend Life cleared it up a little for me. After he checked some other sources it is more stable EPS going forward.

      Delete

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