Shares of TJX companies do not disappoint expectations, buy the dip?

TJX Companies New York Stock Exchange: TJX has seen a strong rise in recent months, but peaked after the Q4 release. The post-earnings action forms an ominous candlestick pattern that could lead to a significant correction. The pattern is a Shooting Star, usually a strong market reversal signal, but there are more reasons to think that the sell-off will not go very far and new highs will be set this year.

These include improved margins and growth prospects that drive robust capital returns. TJX Companies announced an increased dividend share repurchase for 2024 that will provide value to investors. Another is the apparent strength of low-price retail. TJX Companies have delivered industry-leading growth for retail.

The dividend is lower than average compared to S&P 500 stocks but safe and growing. The 35% payout ratio and earnings growth allowed the board to approve a 13% increase in 2024. Repurchases reduced the number of shares by 1.6% in 2023 and are expected to be more strong in 2024. The forecast is $2-2.5 billion in purchases, $2.25 billion in the middle, or about 2.2% of market capitalization. Together, the dividends and buybacks will annualize to 3.5% of the stock price and the company will build equity capital.

Cash flow in the fourth quarter and 2023 was solid, at $2.8 billion for the year. This allowed the company to build its liquidity position by investing in inventory and managing its debt. Long-term debt represents only 0.4 times equity, and equity is growing. Operating activities increased net worth by 15%; another solid year of cash flow is expected in 2024. With no encumbering debt, the company is well positioned to maneuver into 2024 despite concerns about where long-term growth will come from.

TJX Companies Offer Mixed Reports, Market Swings

TJX Companies reported a solid quarter, but results were mixed compared to analysts’ forecasts. Revenues of $16.41 billion rose 13% year over year and beat consensus by 130 basis points, but adjusted earnings were just as expected. This reflects a weaker margin than expected, but the bar was set high. Margin increased to triple digits and led to accelerated profit growth, which is the salient detail for investors.

The revenue strength is due to an extra week this year, but organic growth is also solid and due entirely to traffic. Comps rose 5% systemwide, led by a 7% increase at HomeGoods and a 6% increase in Canada. Sales at Marmaxx, the core business, are 5% GAAP and 10% on an open-only basis; International, a possible growth avenue, gained 3%.

The news on margins is good and includes the impact of less contraction. Adjusted operating margin increased 170 basis points to 10.9%, above company targets, helped by cost reductions. The forecast for the year is also good and calls for revenue growth of between 2% and 3% and a strong margin. Q1 guidance is for margin to decline 30-40 basis points but improve sequentially, ending the year at 10.9%-11.0%.

Analysts guide TJX stock higher

Analyst activity is weak following TJX Companies’ fourth-quarter release, but it is bullish. Marketbeat is tracking a reiterated and an enhanced price target that comes with Outperform ratings. Analysts at Telsey Capital Management and BMO see this stock moving above the consensus target of 2% above post-release action. However, consensus has grown 20% over the past twelve months, leading the market.

Technical Outlook: TJX Falls, But Uptrend Is Intact

Price action in TJX companies is lower after the release, but the uptrend is intact. The market could fall another 2-3% and not be in grave danger of breaking it. The main target for solid support is the short-term moving average near $97.50. A move below could be bearish, but even then a rebound to new highs is still expected. Assuming the 30 day EMA provides support, this market could return to all-time highs before the summer.

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