Shares of off-price retailer The TJX Companies (NYSE:TJX), operators of TJ Maxx, Marshall’s and HomeGoods, managed to stay in line with the market during the pandemic. Since vaccines have arrived, TJX stock is fading, up just 1.1% since Jan. 1 while the S&P 500 Index is up 4.3%.
This has happened despite TJX reinstituting its dividend, which was suspended during the pandemic. A 20-cents per share payout went out Feb. 10.
In a market that’s chasing butterflies, TJX stock looks like a dog. But it’s a well-run company and every dog has its day.
Bull Case for TJX Stock
TJ Maxx has by reshuffling its store pack and going where the shoppers are.
The company is while opening in After years of resistance, it’s at HomeGoods. It has taken the virus seriously and created for older shoppers. The company has focused on its strongest regions and on lowering costs, with .
The numbers tell the tale. Sales fell off a cliff in the first quarter of the pandemic, to $4.4 billion, but to $10.1 billion during the October quarter. Net income also returned to near-normal, at $867 million, which is why the dividend is back. For its Christmas season report, due Feb. 24, analysts are expecting net income of (meaning the dividend is affordable) on revenue of $11.6 billion, close to the pre-pandemic Christmas haul of $12.2 billion.
The balance sheet is also looking good. While long-term debt expanded $2.5 billion from January to October, to $13.2 billion, cash on hand tripled to $10.6 billion from $3.2 billion. Operating cash flow is now better than it was before the pandemic, coming in at $4 billion for the most recent quarter.
Still, There’s a Bear Case
Bears are looking at the stores’ margins, which have been falling . The business model has been to grab name merchandise at close-out and sell it at a discount. But many companies now have either tightened their supply chains to reduce that excess or found other ways to sell it on their own.
Bears also look to TJX’s past, when , as a reason for caution. Walmart (NYSE:WMT
) and Target (NYSE:TGT) have a chance to grab share as their store brands deliver similar prices as national brands at TJX. Then, there are rival department stores , including Macy’s (NYSE:M) Backstage and Nordstrom’s (NYSE:JWN) Nordstrom Rack. (See my take on JWN from earlier this week here.)
TJX is the product of a more Walmart-like retailer called , which opened the first of the brand-extension stores in the 1970s. The apparel brand’s management eventually replaced that of the old department store, launching HomeGoods in 1992 and buying Marshall’s in 1995.
Building Blocks in Place
This is not the first rodeo for TJX. has been in place for over five years.
The retailer has a strong balance sheet and has recovered from the pandemic, even while its . The winners in the K-shaped recovery aren’t in the TJX wheelhouse.
As policymakers shift to boosting demand and creating middle-class jobs, from boosting assets with tax cuts, stores like TJX should benefit. The company has proven it can make money in a challenging environment. It’s boosting its e-commerce presence, and the return of the dividend shows confidence.
Assuming a return to normal, with net income for fiscal 2022 near 2020’s $2.67 a share, you’re paying about 25 times forward earnings with a dividend that yields just 1%.
TJX stock is purely a defensive play, portfolio ballast against a potential market fall. Buy some if you need that.
At the time of publication, Dana Blankenhorn held no shares, directly or indirectly, in any companies mentioned in this article.
has been a financial and technology journalist since 1978. He is the author of , available at the Amazon Kindle store. Write him at , tweet him at , or subscribe to his .
