Better Buy: TJX vs. Target

NYSE: TJX | TJX Cos. News, Ratings, and Charts

TJX – Given the rising prices and the possibility of a recession, consumers are rushing to discount stores or off-price retailers to buy general merchandise at lower prices. This rising foot traffic and enhanced product and service offerings should benefit prominent off-price retailers TJX (TJX) and Target (TGT). But which of these stocks is a better buy now? Read more to find out.

The TJX Companies, Inc. (TJX) and Target Corporation (TGT) are two prominent retailers in the U.S. TJX operates as an off-price and home fashions retailer that sells family and home fashions, fine jewelry, accessories, and other merchandise worldwide. It operates through Marmaxx; HomeGoods; TJX Canada; and TJX International. TGT is a discount store retailer that offers general merchandise, including food assortments, apparel, accessories, home decor products, electronics, seasonal offerings, and beauty and household essentials through its stores and digital channels.

Amid high inflation and the possibility of a recession, consumers are rushing to discount stores or off-price retailers that offer merchandise at relatively lower prices. The growing foot traffic at physical stores, strong online presence, and delivery services should help off-price retailers generate solid revenues. The global off-price retail market is expected to grow at an 8.2% CAGR to $474.77 billion by 2028. Therefore, both TJX and TGT should benefit.

TJX is a winner with 2.6% gains over the past week versus TGT’s 31.1% loss. But which of these stocks is a better pick now? Let’s find out.

Recent Financial Results

TJX’s net sales for fiscal 2023 first quarter ended April 30, 2022, increased 13.1% year-over-year to $11.41 billion. The company’s pre-tax income came in at $852.28 million, indicating an 18.2% year-over-year improvement. While its net income increased 10% year-over-year to $587.47 million, its EPS grew 11.4% to $0.49. As of April 30, 2022, the company had $4.30 billion in cash and equivalents.

For the fiscal 2022 first quarter ended April 30, 2022, TGT’s total revenue increased 4% year-over-year to $25.17 billion. The company’s operating income came in at $1.35 billion, representing a 43.3% decline from the prior-year period. Its net earnings came in at $1.01 billion, down 51.9% from the year-ago period. TGT’s adjusted EPS came in at $2.19, indicating a 40.7% year-over-year decline. As of April 30, 2022, the company had $1.11 billion in cash and cash equivalents.

Past and Expected Financial Performance

Over the past three years, TJX’s tangible book value has increased at a CAGR of 3%. TJX’s EPS is expected to increase 11.9% year-over-year in fiscal 2023, ending January 31, 2023, and 13.5% in fiscal 2024. Its revenue is expected to grow 6.7% in fiscal 2023 and 6% in fiscal 2024. Analysts expect the company’s EPS to rise at a 12.8% rate per annum over the next five years.

Over the past three years, TGT’s tangible book value has declined at a CAGR of 1%. Analysts expect TGT’s EPS to decline 34% year-over-year in fiscal 2022, ending January 31, 2023, and rise 39.2% in fiscal 2023. Its revenue is expected to grow 4% year-over-year in fiscal 2022 and 4.2% in fiscal 2023. Analysts expect the company’s EPS to grow at a 19.6% rate per annum over the next five years.

Valuation

In terms of non-GAAP P/E, TJX is currently trading at 19.24x, 5.4% higher than TGT’s 18.26x. In terms of forward EV/Sales, TGT’s 0.81x compares with TJX’s 1.55x.

Profitability

TGT’s trailing-12-month revenue is 2.2 times TJX’s. However, TJX is more profitable, with an 11.5% EBITDA margin versus TGT’s 10%.

Furthermore, TJX’s ROE, ROA, and ROTC of 56.9%, 10.4%, and 15.4% compare with TGT’s 45.5%, 9.9%, and 17.2%, respectively.

POWR Ratings

While TJX has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, TGT has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

Both TJX and TGT have been graded a B for Quality, consistent with their higher-than-industry profitability ratios. TJX’s 56.9% trailing-12-month ROE is 234.1% higher than the 17% industry average. TGT’s 45.5% trailing-12-month ROE is 167.5% lower than the 17% industry average.

TJX has been graded a B in terms of Sentiment, which is in sync with expected earnings growth. TJX’s EPS is expected to grow 11.9% year-over-year to $3.19 for fiscal 2023 ending January 31, 2023. TGT’s D grade for Sentiment reflects its weak EPS estimated by analysts. The consensus EPS estimate of $8.95 billion for TGT’s fiscal 2022 ending January 31, 2023, represents a 34% decline from the prior-year period.

Of the 68 stocks in the B-rated Fashion & Luxury industry, TJX is ranked #21. In contrast, TGT is ranked #31 of 37 stocks in the A-rated Grocery/Big Box Retailers industry.

Beyond what we have stated above, our POWR Ratings system has graded TJX and TGT for Growth, Momentum, Stability, and Value. Get all TJX ratings here. Also, click here to see the additional POWR Ratings for TGT.

The Winner

Rising foot traffic at off-price and discount stores should benefit both TJX and TGT amid the high inflation. However, higher profitability makes TJX a better buy here.

Our research shows that the odds of success increase if one invests in stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Fashion & Luxury industry, and here for those in the Grocery/Big Box Retailers industry.

 


TJX shares closed at $58.97 on Friday, down $-1.68 (-2.77%). Year-to-date, TJX has declined -21.63%, versus a -17.67% rise in the benchmark S&P 500 index during the same period.


About the Author: Sweta Vijayan


Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
TJXGet RatingGet RatingGet Rating
TGTGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com


Inflation Not Fading Fast Enough for Stock Investors

Investors may have celebrated the end of high inflation too soon. The CPI report shows inflation bouncing higher and thus pushing back the start date for Fed rate cuts. This has the S&P 500 (SPY) coming off recent highs. This begs questions like how much more downside could we see? And when will the bull market get back on track? 44 year investment veteran Steve Reitmeister shares his answers to these questions in this timely commentary including a preview of his top picks to stay ahead of the pack. Read on below for more...

3 Auto Stocks to Consider Over TSLA in April

Tesla (TSLA) reported a decline in deliveries in the first quarter, and Wall Street expects the company to deliver fewer vehicles than last year. Furthermore, rising competition, slowing EV sales, and stretched valuation make TSLA unattractive from an investment standpoint. Considering these factors, investors could consider buying fundamentally strong auto stocks Blue Bird (BLBD), Rolls-Royce Holdings (RYCEY), and Stellantis (STLA) over Tesla (TSLA). Read more...

3 Top-Rated Tech Stock Buys for Value in April

The technology sector is undergoing a notable surge, propelled by increasing digitalization endeavors among businesses and governmental support for technological progress. So, fundamentally sound tech stocks Box Inc. (BOX), Teradata (TDC), and Materialise (MTLS), which seem pretty undervalued, might be ideal buys this month. Continue reading...

Top Software Stocks at the Forefront of Market Gains

The software industry's prospects appear bright due to increasing investments in digital transformation, high demand for advanced software services from various sectors, and the integration of emerging technologies such as generative AI. Therefore, investors could consider buying quality software stocks Autodesk (ADSK), DocuSign (DOCU), and Pegasystems (PEGA) for solid gains. Read more...

Updated 2024 Stock Market Outlook

The bull market continues to rage on with the S&P 500 (SPY) making new highs. That is the past...the question is what does the future hold? That is why 44 year investment veteran Steve Reitmeister provides this updated 2024 Stock Market Outlook to help you carve a path to outperformance the rest of the year. Read on below for the full story...

Read More Stories

More TJX Cos. (TJX) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All TJX News