TJX is built for tough times, but how much room is left for upside?
Consumers have been feeling the squeeze of higher gas prices, elevated rates, lingering inflation, and job uncertainty for a while. It has forced shoppers to rethink how and where they spend their money, which often means trading down to cheaper options.
That shift plays right into the business model of off-price retailers like those under the TJX umbrella. But shares of the company are already flirting with all-time highs, so investors want to know if that growth potential has already been priced in.
Strong business vs. mixed sentiment
TJX is posting numbers that make it look like a winner in today’s market landscape, including:
- A record $60 billion in annual sales and another earnings beat
- An increase in comparable sales of around 5% for five straight years
- Net income of $5.5 billion, which makes it a retail sector leader
But the company’s ace in the hole is a business model designed to thrive when others struggle. As traditional retailers deal with excess inventory, TJX brands can buy excess goods on the cheap and sell them at a discount.
Institutional research shows that off-price retailers now control more than two-thirds of sector sales and a whopping 83% of profits. And with inventory levels on the rise, there appear to be plenty of opportunities for discount buying.
So it might not be surprising that analysts are expecting continued margin expansion and earnings growth … but that optimism hasn’t translated into a straight line higher for TJX stock.
Shares have been choppy in recent sessions for a few reasons, including a slowdown in sales this month and more aggressive guidance from some of the company’s top rivals.
There are also some valuation concerns, with TJX trading above peers at around 30x forward earnings. Meanwhile, recent insider selling raises concerns about management’s stock price expectations.
What Wall Street sees on the horizon
TJX’s strategy still looks solid, but expectations are already set high. Nevertheless, institutions are looking past short-term volatility to maintain an overwhelming “buy” consensus for the stock.
About 91% of all TJX shares are owned by large funds and an average price target of around $167 implies modest upside potential from recent levels. The stock opens this week at just above $155 a share after Friday’s 1.55% dip.
Growth forecasts also look steady, with EPS expected to hit $5 next year to continue a multi-year climb. Meanwhile, shareholder returns received a boost from buybacks that have reached $2.75 billion.
Longer-term projections also include the potential of expanding to roughly 7,000 locations globally.
But while bulls point to economic pressures that are driving more shoppers to the brand, bearish analysts think the current stock price already reflects much of that advantage.
TJX seems to be doing exactly what investors and consumers want to see during a tough economy … but given its premium valuation, anything less than perfection might not be enough to keep moving prices steadily higher.