New Price Target for TJX as Retailer Becomes Tariff-Resistant Recession Play
With budget-conscious shopping on the rise, TJX has a unique advantage among its retail competitors.
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Not only am I long TJX TJX, but this is a position that I have grown of late and is now a top-15 position on my most active book.
The Dow Jones Index of Broadline Retailers was down 8.19% last week. The SPDR S&P Retail ETF gave up 5.33% for the week. TJX, despite losing some ground on Friday, still closed last week up for the five-day period. That's right. Up 3.34% to be precise. I've been long TJX ever since I expected the economy to weaken more than it did during the Biden administration and just kind of left it on my book just in case.
Only recently, as a matter of fact, did I start to build up this position to a still smallish, but no longer a very small, allocation weighting. TJX is the parent company of TJ Maxx, Marshalls and Home Goods. The firm's chains cater to budget-conscious consumers across the apparel and home decor markets through the bulk purchase of surplus goods from frontline retailers at significantly-discounted prices and then swelling those extra or slightly out of style goods off-price to consumers.
There are plenty of retailers that target the lower-end or budget conscious consumer. These retailers, largely led by Walmart WMT, Kohl's KSS, Dollar Tree DLTR and Five Below FIVE, will see increased business should the economy approach recession as more and more consumers will turn into bargain hunters. The difference, for a firm like TJX and a few others, is that many of those other retailers import cheaper goods, much of them from China, in order to keep prices low. With the recently-announced tariffs, these retailers will be forced to choose between diminishing margins and having to raise prices.
TJX, on the other hand, is buying these goods after higher-end retailers had been stuck with unwanted inventories and needed to get them out the door. Hence, even if imported, someone else has already paid the tariffs or duties. This could very well work in the favor of a retailer such as TJX and allows the firm to potentially escape some of the margin compression faced by competitors.
The Deal
Should either the economy slow significantly or the new tariffs stand for longer than anyone hopes (or both), TJX is likely, in my opinion, to be a beneficiary of that environmental change in a field that would almost certainly sustain heavy damage. The stock is down on Monday morning with the broader market and to me, that's probably an opportunity.
The firm is expected to report its first quarter earnings on May 21 (or so). Wall Street is looking for a GAAP EPS of $0.90 on net sales of slightly better than $13 billion. That would compare to $0.93 a year ago, while reflecting year-over-year revenue growth of 4.2%. What the stock does will have more to do with what CEO Ernie Herrman has to say concerning both the economy and the impact of tariffs on TJX versus the competition.
For the quarter ended February 2025, TJX generated operating cash flow of $2.704 billion and free cash flow of $2.19 billion, which is impressive. The balance sheet is in significantly better shape than many retailers and what we have come to expect from them. As of February, TJX had a cash position of $5.335 billion with absolutely no short-term debt on the books. Long-term debt only came to $2.886 billion, so the firm could, if needed, erase their debt almost twice over out of pocket, while generating more cash.
Last Week...
Paul Lejuez of Citigroup upgraded TJX from "Neutral" to "Buy" while raising his target price from $128 to $140. Additionally, Corey Tarlowe of Jefferies reiterated his "Buy" rating on the stock and his $150 target price. Both Lejuez and Tarlowe are rated as five-star analysts by TipRanks.
Readers will see that the sell-off in TJX that began on Friday and has carried over into Monday has worked to add a handle to what had been a six-week cup pattern that came after an extended period of sideways movement. This looks to me to be a potentially bullish pattern with a $128 pivot. That said, it would help a lot if TJX does not lose contact with that 20-day SMA. That line holds, and with the 50-day SMA in range, we'll have a ballgame kids. My target is currently $147.
At the time of publication, Guilfoyle was long TJX equity.
