Cowen: TJX Companies' Value Proposition Improves If Chinese Tariffs Hit Retailers

After hosting meetings with TJX Companies Inc TJX CFO Scott Goldenberg, Cowen said it's confident in the company’s earnings growth potential despite the sector’s low sentiment.

The Analyst 

John Kernan reiterated an Outperform rating on TJX with a $63 price target.

The Thesis

Following a meeting with Goldenberg, Kernan said in a Monday note that he remains confident in TJX Companies' potential for a compounded annual growth rate in the high single to low double digits. (See Kernan's track record here.) 

The high-level takeaways from the meeting include TJX's confidence in growth targets and the trajectory of the business, the analyst said. The core business is healthy and consensus estimates are conservative, he said. 

“We see investments in DCs as producing improved unit/cost economics over time. We view freight as a source of potential margin recovery in FY21. (The) stock is cheap at 17x FY21 EPS and 10.5x Expected Value/EBITDA with potential for compounding growth." 

TJX emphasized how strong the buying environment, Kernan said. 

“Our checks show TJX is in good position to take advantage of order cancelations from department stores to vendors that are accelerating into June following a very weak May environment in the full-price retail ecosystem." 

TJX’s price-to-value equation will expand if full-price retailers raise prices as a result of tariffs on goods imported to the U.S. from China, the analyst said. 

“Management noted that buyers will approach vendors carefully once they have more clarity on where pricing is going within retail." 

Price Action

TJX Companies shares were up 1.62 percent at $50.70 at the time of publication Tuesday. 

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