ValueSniper: TJX is a good buy ahead of earnings

People are still spending money, but with Obamacare and relatively high gas prices, how much does the ordinary consumer have left to put toward higher end items?

Today, I am going to highlight the biggest off-price apparel and home fashions retailer in the United States.

They operate in four business segments. It has two segments in the United States, Marmaxx (T.J. Maxx and Marshalls) and HomeGoods; one in Canada, TJX Canada (Winners, Marshalls and HomeSense) and one in Europe, TJX Europe (T.K. Maxx and HomeSense).

Highlighting some bits from their latest conference call:

-Strongest year-over-year comparisons for quarterly comp and EPS growth

-EPS grew 13% from the previous year, consolidated comps up 2% from previous year

-Net sales $6.2 Billion, a 7% increase over last year.

- Consolidated inventories on a per store basis including warehouses but excluding e-commerce were down 3%.

-(From CEO) Very few apparel retailers out there that would deliver a 20 basis point gross margin increase in a quarter with one of the coldest winters on record (2012-2013).

They are in a good position moving into the second half of the year and the rest of 2013, seeing enormous near and long term opportunities in their brick and mortar business, supply chain, e-commerce and market share growth potential.

In the first quarter, they bought back $300 million in common stock, amounting to 6.5 million shares. They continue to anticipate to buy back $1.3-$1.4 billion in stock throughout the rest of 2013. The board of directors also approved a 26% increase in the per share dividend in April, making the 17th consecutive year of dividend increases.

They have raised growth potential for Marmaxx, expecting to increase their store count from 2,400 to 2,600. Store growth estimates for HomeGoods have been increased from 750 to 825 in the long term.

Quarter 2 results, which will be released on Tuesday, August 20th, expect to be in the range of $0.61 to $0.63, a 9-13% increase from last year's results of $0.56. Top line growth is expected $6.3 to $6.4 billion on expected comp sales growth of 2-3%.

They are forecasting full year 2014 earnings per share to be $2.70-$2.78 from a full year earnings per share of $2.55 in 2013. Fiscal year 2013 included approximately $0.08 benefit from the 53rd week. Excluding the extra week, fiscal '14 full year expected EPS would be 9-13% increase over the prior year. They also expect comp sales growth of 1-2%.

EPS and revenue growth compared to their peers (Mainly Ross Stores) shows higher EPS growth but slightly lower revenue growth (10.52% v 11.4%). Overall, they are in a pretty good place.

Above, another breakdown of comparisons of TJX to its peers and the S&P.

I arrived at a price target of $53.56 which is 6.10% above Friday, August 16th's close. Most of the data was from Yahoo, but I did use Bloomberg to piece in the rest of the data for items that were not readily available.