Stock Chasing: Over-Bulling in TJX??? (TJX, M, JWN)

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The TJX Companies, Inc. (NYSE: TJX) is seeing a boost this Tuesday morning after a long weekend thanks to a bullish report in Barron’s.  The financial weekly calls for a gain of 14% (including dividends) for shares to go to $60.00.  The growth plans and the new HomeGoods chain are expected to be drivers.  While all true in the detail and in the past performance, this looks and feels like a call that is one happening too close to the top.

The good news is that TJX is not likely to see its share price compress massively.  This one has risen nearly 200% since the lows at the end of 2008, it offers a 1.4% dividend yield that is likely to rise, and it is one of the best run retailers out there whether you look at discounters or full-price retailers.  In many cases, you can often buy the same exact goods that you find at Macy’s Inc. (NYSE: M), Nordstrom Inc. (NYSE: JWN), and dozens of other full-price retailers at a price that is sometimes only about 30% of the full price.  What the real percentage discount is depends on many factors, but the savings are more than enough to justify price-sensitive shoppers paying a visit to T.J. Maxx or Marshall’s.

At issue is this $60 target.  Thomson Reuters has a consensus price target objective of just over $56.00.  After closing at $53.46 on Friday, the 52-week range is $39.56 to $54.94.  That $54.94 price also happens to be an all-time high.  One recent call worth noting that could support the Barron’s tout over our own price-driven caution is that UBS in early May initiated coverage of TJX with a Buy rating and $63 target.

One issue we have on our own concerning TJX is that buying up discounted close-out bulk inventory may become more difficult as retailers and manufacturers get their supply chains and inventory management at steady levels.  In short, the continued recovery could actually crimp its ability to keep adding gains to same-store sales.  If the growth dips very lightly into the red, well then that argument is out.  Still, this is something that we do not see covered as much and we consider it a real issue.

Having upside above Wall Street consensus is not a sin.  Making a big deal of 14% upside is something that investors should be concerned about.  The Barron’s weekend email summary that went out noted, “The off-price retailer, parent of T.J. Maxx and Marshall’s, is managing its business astutely and ringing up higher sales. Barron’s argues that it’s a good time to go shopping for the company’s shares.”

Our take is that the company is a solid company but one where the upside is not enough to justify an entry.  If shares come down by 8% or 10%, well this Barron’s analysis will investors a better entry point on a risk versus reward basis.  Chasing what could be the last 10% to 15% after a near-200% gain from the cycle bottom is how investors turn small fortunes into smaller fortunes.

Our take… Wait for a pullback and the evaluate what the risk-reward scenario means for a $56 to $60 target, or even that $63 target.

JON C. OGG

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