Option Trade 
TJX Companies Inc (NYSE:TJX) Calls 
Monday, 15th August, 2016

** OPTION TRADE: Buy the TJX OCT 21 2016 85.000 call at approximately $2.00. Place a pre-determined sell at $4.00.

Note: No protective stop losses added -- but if you wish to do so make it $0.80.

by Ian Harvey

August 15, 2016

TJX Companies Inc (NYSE: TJX), a discount retailer, is set to issue its Q217 quarterly earnings data on Tuesday, August 16th, before the market opens. Analysts expect the company to announce earnings of $0.81 per share and revenue of $7.85 billion for the quarter. The TJX Cos. has set its Q2 guidance at $0.77-0.79 EPS and its FY17 guidance at $3.35-3.42 EPS.

Last quarter, the company delivered a positive earnings surprise of 8.57%. In fact, the company delivered an average positive surprise of 5.38% in the last four quarters.

Navigating successfully through downturns in the economy, The TJX Companies, Inc. has managed to deliver annual same store sales increases every year for the last two decades.

The off-price retailer, which operates across nine countries, surpassed the $30 billion milestone with net sales for FY16 reaching $30.9 billion. Adjusted EPS has grown at a Compound Annual Growth Rate of 14% for the 15-year period ending FY16.

The company has perfected merchandising to an art in the last 40 years, sourcing inventories from a universe of more than 18k vendors in 100 plus countries.

TJX expects to grow its store base by more than 50%, to 5,600 stores long term, in just its current retail chains and current markets alone, from a present base of about 3,661 stores.

An above-plan first quarter motivated the company to raise EPS guidance for the fiscal year ending January 28, 2017, to $3.35 to $3.42, which would represent a 1% to 3% increase over $3.33 in fiscal 2016, but below the consensus estimate of $3.48.

Just this year, TJX shares have gained nearly 17 percent compared with gains closer to 7 percent in both the S&P 500 retail index (.SPXRT) and the broader S&P 500 (.SPX).

The TJX Cos. has a one year low of $63.53 and a one year high of $83.54. The stock has a market cap of $54.49 billion and a P/E ratio of 24.22. The company’s 50-day moving average price is $79.08 and its 200-day moving average price is $76.18.

Why TJX Companies?

TJX Companies has been posting modest earnings and revenue growth over the past few quarters backed by improvement in consumer traffic, higher margins and solid comparable-store sales growth.

The company has been reporting positive comps growth over the past 29 quarters supported by higher traffic. The company's fresh collection and widespread sourcing machinery has helped it maintain a loyal customer base. The trend is expected to continue in the to-be-reported quarter as well.

During fiscal 2016, TJX Companies ramped up its marketing and promotional initiatives in its stores. This is expected to boost its top line in the to-be-reported quarter as well. The company's acquisition of Sierra Trade Post in Australia, which was integrated in fiscal 2016, will also expand global presence and boost revenues in the to-be-reported quarter. This is expected to boost revenue in the to-be-reported quarter as well.

Based on the guidance issued during first-quarter fiscal 2017 conference call, TJX expects fiscal second-quarter earnings in the range of 77 cents to 79 cents compared with 80 cents reported a year ago. Comparable-store sales are expected to grow 2-3%. Fiscal second-quarter net sales are expected to be in the range of $7.7 billion to $7.8 billion.

Analyst Input

The TJX Cos.‘s stock had its “buy” rating reissued by equities researchers at Goldman Sachs Group Inc. in a research note issued to investors last Monday. They presently have a $92.00 price objective on the apparel and home fashions retailer’s stock. Goldman Sachs Group Inc.’s target price points to a potential upside of 14.51% from the company’s current price.

Also, Kim Forrest, senior equity research analyst Fort Pitt Capital Group in Pittsburgh said that "TJX has outperformed and will continue to outperform because it is a good merchandiser. It gets the selection right.”

Also, several other equities research analysts have recently commented on the company.

• Zacks Investment Research upgraded The TJX Cos. from a “sell” rating to a “hold” rating in a research note on Wednesday, July 27th.

• BMO Capital Markets reiterated an “outperform” rating and issued an $85.00 price target on shares of The TJX Cos. in a research note on Thursday, June 30th.

• Wells Fargo & Co. reiterated a “buy” rating on shares of The TJX Cos. in a research note on Monday, June 27th.

• Finally, Miller Tabak initiated coverage on The TJX Cos. in a research note on Friday, June 24th. They issued a “buy” rating and a $91.00 price target for the company.

Shares of The TJX Cos. (NYSE:TJX) have received an average rating of “Buy” from the twenty-three ratings firms that are covering the company. Three investment analysts have rated the stock with a hold recommendation and twenty have given a buy recommendation to the company. The average 12-month price objective among brokers that have updated their coverage on the stock in the last year is $83.63.

Harvey’s Options Volatility Indicator

Conclusion

TJX stock set record closing highs on Friday ahead of the quarterly report due Tuesday.

But the stock gains could continue, as sales are expected to continue to grow and investors welcome the revenue increase. Same-store sales are expected to have risen 3.3 percent last quarter for TJX.

"The off-price sector has developed a successful strategy to keep consumers coming back," said New York-based Christina Boni, a senior analyst at Moody's Investors Service.

"Stores have the unique ability to change product offerings quickly, which creates a 'scarcity' effect that makes consumers feel more compelled to purchase on the spot, rather than risk someone else beating them to the checkout line," she said.

Shoppers are indeed favoring discounters, and the competition is trying to catch up. Both Macy's (.M.N) and Nordstrom (JWN.N) talked up their off-price lines - Backstage and Nordstrom Rack - in their most recent earnings reports.

"Consumers have started moving to dollar stores and places like off-price chains" at the expense of Macy's and other department stores, said Burt Flickinger, managing director at retail consultancy Strategic Resources Group in New York.

The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, growth in earnings per share, increase in net income and largely solid financial position with reasonable debt levels by most measures – which leads to a positive earnings report which is beneficial to this options trade.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the TJX OCT 21 2016 85.000 call at approximately $2.00. Place a pre-determined sell at $4.00.

Note: No protective stop losses added -- but if you wish to do so make it $0.80.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.



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