It's the Wrong Time for TJX

 | Nov 18, 2011 | 10:45 AM EST
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All week I've been looking at retailers that could give investors a happy holiday. But one retailer that has been providing Christmas cheer all year long is TJX Cos. (TJX). With more than $20 billion in revenue, TJX has a knack for delivering the bargains that consumers crave. However, with the stock up almost 40% year to date, is TJX a buy or should investors leave it on the rack? 

With more than 2,900 stores, TJX is the 800-pound gorilla of off-price retailing. The company operates 980 T.J. Maxx stores, 884 Marshalls locations and 375 HomeGoods stores in the U.S. and another 666 stores in Canada and Europe. As with some of the other retailers I have covered this week, TJX continues to report fairly healthy same-store sales. For the fiscal third quarter (ended October), reported Nov. 15, TJX reported 3% companywide comps, and HomeGoods led the pack with a 5% increase. Canada and Europe struggled.

Otherwise, earnings per share of $1.06 beat the Street consensus by $0.01, and most analysts raised their estimates. It looks as though the company can earn $4.46 in fiscal 2013, up from $3.97 in 2012. Driven by new store openings and increased same store sales, most analysts estimate TJX can grow revenue 6.5% to $24.6 billion. 

I'm worried that $4-per-gallon gasoline will have an impact on TJX's customer base. Although the company continues to aggressively build out its store base (having added 52 in the quarter) and grow EPS, I fear consumer spending may slow after the holidays. For the remainder of the fiscal year, management expects to deliver EPS growth of between 13% and 14% off of a 3% increase in same-store sales.

In my opinion, TJX is a mid-$60s stock, meaning 10% to 12% of upside from current levels. Historically, TJX trades between 7x and 15x earnings -- and, at the current quote, it's pretty close to the upper end of the range. If you go further back in time, TJX has traded as high as 22x estimates. Still, with a tough economy and high gas prices, I don't believe the stock can trade that high. While this company will most definitely deliver bargains for consumers, it may only bring lukewarm appreciation to investors. 

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