TJX (TJX) lets consumers find good deals on name-brand apparel, furniture, home goods and more at off prices, having done so successfully for quite a while. The company's third-quarter results will show whether investors can continue getting quality at an affordable price or if shares will be on the discount rack.
Goldman Sachs analyst Lindsay Drucker Mann noted that the buying environment for TJX, which buys excess inventory from retailers, remains favorable, despite a slowdown in the second quarter. "TJX reported 2Q EPS ahead of consensus but comps of +4% decelerated from +7% in 1Q," Drucker Mann wrote in a note to clients. "Still, momentum remains healthy on an absolute basis, and we expect a favorable buying environment and structural off-price advantages to drive continued momentum, even against strong comparisons."
Analysts surveyed by Yahoo! Finance expect TJX to earn 87 cents a share on $8.22 billion in sales when it reports third-quarter earnings on November 15.
TJX owns its name sake TJ Maxx, Marshall's and Home Goods, all which are constantly changing their inventory and providing shoppers with new buys daily, which makes its business somewhat Amazon (AMZN) proof.
Bank of America Merrill Lynch analyst Lorraine Hutchinson noted that spending from the demographic making between $20,000 and $50,000 a year, which should help TJX. That segment grew its spending 5.3% over the past twelve months and those making less than $20,000 grew spending at a 3.6% clip.
Conversely, those making $125,000 or more saw their spending fall 4.6% over the past twelve months.
These three ETFs should benefit if investors like what TJX has to say about the past 90 days and if its outlook for the holiday shopping season is strong.
PowerShares Dynamic Retail Portfolio ETF
TJX comprises 4.95% of the PowerShares Dynamic Retail Portfolio ETF (PMR) $21.3 million portfolio and has a 0.63% expense ratio for investors.
Goldman Sachs's Drucker Mann, who has buy rating on TJX, said that margins may "restrain earnings" over the next couple of years, as will the two new distributions set to be opened, but those factors are already in the stock.
"We model a slight rebound in 3Q comps to +5% from +4% in 2Q with HomeGoods and Canada modestly outpacing Marmaxx and International," Drucker Mann wrote in a note to clients. "We expect incremental SG&A costs, partially offset by 30bps of gross margin expansion, to drive 60bps of operating margin deleverage and lead to EPS of $0.89 versus consensus $0.87."
VanEck Vectors Retail ETF
TJX makes up 4.53% of the VanEck Vectors Retail ETF (RTH) which has $107.4 million in assets under management and charges investors a 0.35% expense ratio.
Bank of America Merrill Lynch's Hutchinson, who has a $85 price target on TJX, believes the company deserves a slight premium in valuation compared to its competitors. "TJX has strong domestic momentum, a solid international growth opportunity, significant square footage growth potential, a strong track record of returning excess cash to shareholders and high returns on invested capital," Hutchinson wrote to clients.
PowerShares DWA Consumer Cyclicals Momentum Portfolio ETF
The PowerShares DWA Consumer Cyclicals Momentum Portfolio ETF (PEZ) has TJX make up 3.1% of its $42.7 million in assets under management. Investors are charged a 0.6% expense ratio.
Morgan Stanley analyst Kimberly Greenberger has noted that despite negatives to earnings like wage hikes, investments in supply chain and IT and foreign exchange, the company will have earnings power. ""[W]e remain confident that post this investment cycle, TJX can sustainably deliver LDD EPS growth--a rarity across our coverage," Greenberger wrote to clients. "We would look to add to positions on pullbacks."
Morgan Stanley has a $77 price target and an equal weight rating on TJX shares.