The cheapest valued among its peers
Kohl’s is worth $11.8 billion on the market, with a valuation of 5.8 times its trailing EBITDA. It seems to have a much cheaper valuation compared to The TJX Companies, Inc. (NYSE:TJX) and Target Corporation (NYSE:TGT). The TJX Companies, Inc. (NYSE:TJX) is the most expensively valued retailer. It is trading at $52.40 per share, with a total market cap of $37.70 billion. The market values The TJX Companies, Inc. (NYSE:TJX) at around 10 times its trailing EBITDA. The TJX Companies, Inc. (NYSE:TJX) is the leader in off-price apparel and home fashion retailing in the U.S., operating more than 3,000 stores in six countries. The TJX Companies, Inc. (NYSE:TJX) reported that it had a huge opportunity to increase its market share, including rising comparable store sales growth by customer traffic and a better shopping experience with broad demographic, including younger customers.
In the period of 2006 – 2013, its adjusted pre-tax margin has grown from 6.7% to 11.9%. TJX expected to grow its margin further by scaling its European business, increasing supply chain efficiencies and focusing on cost savings. For the fiscal 2014, TJX expected to generate around $2.70 to $2.78 earnings per share, with the consolidated comp store sales growth of around 1%-2%.
Target Corporation (NYSE:TGT) also had a higher valuation than Kohl’s. It is trading at $72.60 per share, with a total market cap of around $46.60 billion. The market values Target Corporation (NYSE:TGT) at 7.72 times its trailing EBITDA. Target Corporation (NYSE:TGT) also returned cash to its shareholders in both dividends and share repurchases. In the first quarter, it paid out $232 million in dividends and spent around $547 million to retire 8.5 million shares at around $64.04 per share. For the full year, Target Corporation (NYSE:TGT) is expected to generate earnings of around $4.12 to $4.32 per share. Income investors might like Target with its decent dividend yield at 2.4%, while TJX only offers a 1.10% dividend yield to its shareholders. However, TJX has the lowest payout ratio at only 18%, while the payout ratios of Target and Kohl’s are much higher at 32% and 31%, respectively.
Among the three retailers, TJX is the most profitable business with the highest ROIC at 41.88%. Kohl’s ranked second with 9.28% ROIC, while the ROIC of Target stayed at only 6.28%.
My Foolish take
TJX, with the most profitable operations and low payout ratio, deserves a high valuation among the three companies. Thus, it could be a good stock to hold in the long run. Kohl’s is also a good pick for investors at its current trading price, due to its lowest valuation, a reasonable profitability and the highest dividend yield. Moreover, with an expected higher cash flow, Kohl’s will return more cash to investors via higher dividend payments and higher share repurchases in the near future.
Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article More Expected Shareholder Returns For This Specialty Retailer originally appeared on Fool.com is written by Anh HOANG.
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