TJX Preview: Value Proposition Is Very Popular

The TJX Companies (TJX - commentary - Trade Now) is scheduled to report fiscal third-quarter 2010 earnings on Tuesday, and analyst consensus is calling for 80 cents per share, for year-over-year growth of 37%, on $5.25 billion in revenue, for year-over-year growth of 10%.

Overall October comps rose 10%, while the October comps for the combined TJ Maxx and Marshall's rose 12%.

In the company's Nov. 5 press release, management raised guidance and told investors to expect third-quarter EPS to be at or slightly above the recently raised range of 77 cents to 79 cents, hence analysts have settled on a consensus of $0.80.

No question the company's value proposition has been well-received as store traffic continues to account for the majority of the strong comps. TJX management says that the strong brands and great fashion are appealing to customers "across a wide range of customer demographic groups."

One analyst model we reviewed in preparing for the earnings call is looking for a 27.1% gross margin, a 10.7% operating margin, a 38% tax rate and a 6.5% net margin and expects management could further raise guidance during the conference call.

The stock is up almost 100% this year, bottoming below $20 in both November of last year and then again in late January 2009, and trading at $39 and change currently. The current consensus EPS estimates of $2.59 for 2010 and $2.89 for 2011 leave TJX trading at 15 times and 18 times fiscal year estimates, for what is expected to be 11% growth in 2011. Despite all the good news of late, TJX is still trading below its October 2009 high of $40.64.

TJX could be a big beneficiary of the coming holiday shopping season, given its value proposition.

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At the time of publication, Gilmartin had no positions in the stocks mentioned, although positions may change at any time.

Brian Gilmartin, CFA, founded Trinity Asset Management (TAM) in 1995, where he is currently a portfolio manager. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Gilmartin appreciates your feedback; click here to send him an email.