The TJX Companies, Inc. (TJX): Is This Retailer Still Good Value?

The TJX Companies, Inc. (NYSE:TJX) also has growth opportunities from expanding its appeal to male and youth customers

It is launching a large scale e-commerce initiative in the second half of 2013, of which it claims to have made minimal assumptions within its growth projections.

Many of these plans have things in common with other companies in the retail sector. For example Coach, Inc. (NYSE:COH) is trying to deal with the problem of rivals like Michael Kors Holdings Ltd (NYSE:KORS) encroaching on its affordable luxury market by focusing on non-core categories for its growth. In particular, its initiatives in footwear, apparel, and men’s categories are a recognition that retail outlets need to be innovative in developing new revenue streams. In common with The TJX Companies, Inc. (NYSE:TJX)’ plans to target men, Coach, Inc. (NYSE:COH) is trying to tap into the growing market for male fashion and grooming.

Similarly, Nordstrom, Inc. (NYSE:JWN)’s collection of growth plans center on expanding its e-commerce, in-store mobile point of sale devices, and Rack stores; all of which requires significant capital expenditures (around $3.7 billion) over the next five years. It is an ambitious plan and adjusting to the new retail environment is the right thing to do, but investors need to be confident in its execution.

Where next for TJX Companies?

The stock has had a nice run and I note some profit taking after the results. I like the stock and have a target price in the mid $50’s. Analysts expect double-digit earnings growth for the next couple of years and I like its long-term earnings prospects from the growth drivers discussed above.

A forward PE of around 18x may appear expensive, but it has converted over 140% of its earnings into operating cash flow on average for the last three years. Its business model is cash generative and it has good growth prospects. If it can generate another $2 billion in free cash flow this year, this would put it on a forward free cash flow yield (as I write) of 5.4%. That’s good value for its long-term prospects.

The article Is This Retailer Still Good Value? originally appeared on Fool.com and is written by Lee Samaha.

Lee Samaha has positions in TJX Companies and Ross Stores. The Motley Fool recommends Coach. The Motley Fool owns shares of Coach. Lee is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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