TJX Companies Inc - Stock Research Analysis

By: FAST Graphs | Mon, Aug 6, 2012
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About TJX (TJX) Companies Inc: Directly from their website

"The TJX Companies, Inc. is the leading off-price retailer of apparel and home fashions in the U.S. and worldwide. The Company operates 1,005 T.J. Maxx, 891 Marshalls, and 393 HomeGoods stores in the United States; 220 Winners, 87 HomeSense, and 12 Marshalls stores in Canada; and 338 T.K. Maxx and 24 HomeSense stores in Europe. TJX's press releases and financial information are also available at www.tjx.com."

Earnings Determine Market Price: The following earnings and price correlated F.A.S.T. Graphs™ clearly illustrates the importance of earnings. The Earnings Growth Rate Line or True Worth™ Line (orange line with white triangles) is correlated with the historical stock price line. On graph after graph the lines will move in tandem. If the stock price strays away from the earnings line (over or under), inevitably it will come back to earnings.


Earnings & Price Correlated Fundamentals-at-a-Glance

A quick glance at the historical earnings and price correlated FAST Graphs™ on TJX Companies shows a slight picture of overvaluation based upon the historical earnings growth rate of 18.6% (orange circle) and a current PE of 20.4 (blue circle). Analysts are forecasting the earnings growth to continue at about 12%, and when you look at the forecasting graph below, the stock appears overvalued, (it's outside of the value corridor of the five orange lines - based on future growth).


TJX Companies Inc: Historical Earnings, Price, Dividends and Normal PE Since 1998

TJX Companies Inc (TJX)


Performance Table TJX Companies Inc

The associated performance results with the earnings and price correlated graph, validates the principles regarding the two components of total return; capital appreciation and dividend income. Dividends are included in the total return calculation and are assumed paid, but not reinvested.

When presented separately like this, the additional rate of return a dividend paying stock produces for shareholders becomes undeniably evident. In addition to the 17.5% capital appreciation (green circle), long-term shareholders of TJX Companies Inc, assuming an initial investment of $1,000, would have received an additional $433.68 in dividends (blue highlighting) that increased their total return from 17.5% to 17.8% per annum versus 3.6% (red circle) in the S&P 500.

TJX Companies Inc (TJX)

The following graph plots the historically normal PE ratio (the dark blue line) correlated with 10-year Treasury note interest. Notice that the current price earnings ratio on this quality company is as low as it has been since 1998.

TJX Companies Inc (TJX)

A further indication of valuation can be seen by examining a company's current price to sales ratio relative to its historical price to sales ratio. The current price to sales ratio for TJX Companies Inc is 1.41 which is historically high.

TJX Companies Inc (TJX)


Looking to the Future

Extensive research has provided a preponderance of conclusive evidence that future long-term returns are a function of two critical determinants:

  1. The rate of change (growth rate) of the company's earnings
  2. The price or valuation you pay to buy those earnings

Forecasting future earnings growth, bought at sound valuations, is the key to safe, sound, and profitable performance.

The Estimated Earnings and Return Calculator Tool is a simple yet powerful resource that empowers the user to calculate and run various investing scenarios that generate precise rate of return potentialities. Thinking the investment through to its logical conclusion is an important component towards making sound and prudent commonsense investing decisions.

The consensus of 25 leading analysts reporting to Capital IQ forecast TJX Companies Inc's long-term earnings growth at 12% (orange circle). TJX Companies Inc has low long-term debt at 20% of capital (red circle). TJX Companies Inc is currently trading at a P/E of 20.4, which is above the value corridor (defined by the five orange lines) of a maximum P/E of 18 (orange arrow). If the earnings materialize as forecast, TJX Companies Inc's True Worth™ valuation would be $64.20 at the end of 2017 (brown circle on EYE Chart), which would be a 7.7% annual rate of return from the current price (yellow highlighting).

TJX Companies Inc (TJX)


Earnings Yield Estimates

Discounted Future Cash Flows: All companies derive their value from the future cash flows (earnings) they are capable of generating for their stakeholders over time. Therefore, because Earnings Determine Market Price in the long run, we expect the future earnings of a company to justify the price we pay.

Since all investments potentially compete with all other investments, it is useful to compare investing in any prospective company to that of a comparable investment in low risk Treasury bonds. Comparing an investment in TJX Companies Inc to an equal investment in 10 year Treasury bonds, illustrates that TJX Companies Inc's expected earnings would be 6.3 (purple circle) times that of the 10 Year T-Bond Interest. (See EYE chart below). This is the essence of the importance of proper valuation as a critical investing component.

TJX Companies Inc (TJX)


Summary & Conclusions

This report presented essential "fundamentals at a glance" illustrating the past and present valuation based on earnings achievements as reported. Future forecasts for earnings growth are based on the consensus of leading analysts. Although, with just a quick glance you can know a lot about the company, it's imperative that the reader conducts their own due diligence in order to validate whether the consensus estimates seem reasonable or not.

 


Disclosure: Long TJX at the time of writing.

 


 

FAST Graphs

Author: FAST Graphs

F.A.S.T. Graphs™

F.A.S.T. Graphs™ is a powerful research tool providing "essential fundamentals at a glance" on over 17,000 symbols. F.A.S.T. Graphs™ empowers the user to research stocks deeper and faster by allowing them to exploit the undeniable relationship and functional correlation between long-term earnings growth and market price. Warren Buffett, the greatest capital allocator of all time, said; "there are only two things that investor needs to know; how to value a company and how to think about stock prices." With the F.A.S.T. Graphs™ at their disposal, users are able to perform both of these critical tasks... FAST.

F.A.S.T. is an acronym for Fundamentals Analyzer Software Tool that takes all the hours of manual graphing of business fundamentals and reduces it to seconds, giving you critical information in an instant. With one glance you know a lot about the business you are graphing and its past, present and future value. F.A.S.T. Graphs™ should be the first step in every research project. Each graph is worth 1,000 words in describing a company's growth, consistency and valuation.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

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Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/