Should Investors Become Maxxinistas?

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a great way to gain a detailed and thorough perspective on a company and its future. As 2012 draws to a close, I would like to focus on a leading international retail chain operator: TJX Companies (NYSE: TJX).

 

Strengths:

  • Solid Revenue Growth: In 2007, TJX reported revenue of $17.41 billion; in 2012, the company announced revenue of $23.19 billion, representing year over year annual growth of 5.90%, a solid trend which is highly anticipated to continue into the future, with projections placing 2017 revenue at $31.09 billion. Much of this growth has been a result of expansion in the number of TJX stores

 

  • Dividend: TJX currently pays out quarterly dividends of $0.115, which puts the dividend as yielding 1.11% annually
  • Institutional Vote of Confidence: 92% of share outstanding are held by institutional investors, displaying the confidence some of the largest investors in the world have in the company and its future
  • Reasonable Valuation: Currently, the company carries a price to earnings ratio of 17.66, a price to book ratio of 9.68, and a price to sales ratio of 1.31, all of which point to a company trading with a reasonable valuation when TJX’s growth and future prospects are taken into account

 

  • Cash & Equivalents: At the moment, TJX carries $1.64 billion of cash and cash equivalents on their balance sheets, a major upside to the business

 

  • Multiple Retail Chains: TJX is not completely reliant on one retail chain. The company possesses three major chains: T.J. Maxx, Marshalls, and HomeGoods, adding diversification and predictability to the company

Weaknesses:

  • Debt: At the moment, TJX possesses $774.53 million of debt on their balance sheets, a minor downside to the business

 

  • Tight Margins: TJX currently carries a net profit margin of 6.45%, which is well below the ideal double digit range and leaves little room for unexpected expenditures
  • Brands Compete Against Each Other: TJX’s three main brands T.J. Maxx, Marshalls, and HomeGoods, compete against each other for the business of the consumer, a major downside to the business

Opportunities:

  • Dividend Growth: Since implementing their dividend program in 1980, TJX has consistently raised their dividend payouts, a trend that is expected to continue into the future

 

  • Increasing Profit Margin: TJX currently possesses a narrow net profit margin, and any improvement in this statistic is an extreme opportunity and could fuel growth (Net Margin 2008: 4.1% 2012: 6.5% 2016 (Projected): 7.9%); this increase in profit margins has been a result of an increase in pricing power for TJX
  • Acquiring Exciting Products: Much of the excitement and sales growth of TJX has sprouted from its claim to acquire exciting products at discount prices, and further acquisitions of new and fresh products could fuel excitement and sales
  • Store Expansion: Since opening their first 2 stores 35 years ago, TJX has consistently opened new stores to fuel overall company growth, and further expansion in the number of stores is likely, as with over 2,900 stores today they foresee 4,500 stores as a goal
  • Acquisitions: In December 2012, TJX acquired Sierra Trading Post, an internet retailer, and further acquisitions in the future could fuel growth

Threats:

  • Competition: The retail industry is one of the most competitive in the world, and the fierce battling to offer the best product for the least amount of money can lead to margin compression
  • Stagnant Global Economic Landscape: If the global economic landscape sustains with such uncertainty and stagnation, TJX’s growth would suffer

Competition:

Major publicly traded competitors of TJX include Ross Stores (NASDAQ: ROST), Urban Outfitters (NASDAQ: URBN), The Gap (NYSE: GPS), and American Eagle Outfitters (NYSE: AEO). All of these companies offer products similar if not identical to those of TJX. Ross is valued at $11.83 billion, pays out a dividend yielding 1.05%, and carries a price to earnings ratio of 16.09. Urban is valued at $5.58 billion, does not pay out a dividend, and carries a price to earnings ratio of 28.67. The Gap is valued at $14.59 billion, pays out a dividend yielding 1.64%, and carries a price to earnings ratio of 14.91. Finally, American Eagle is valued at $3.93 billion, pays out a dividend yielding 2.22%, and carries a price to earnings ratio of 17.92.

The Foolish Bottom Line:

Financially, TJX is relatively strong. The company possesses solid revenue growth, a growing dividend, and a pile of cash that outweighs the debt load. Additionally, the company’s future is filled with opportunities that could result in growth. All in all, TJX appears to a tremendous investment, but the retail industry is so extremely competitive that I do not feel safe putting my money into a company that relies on fashion trends for sales.

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makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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