Retail Is At The Forefront Of Viral Impact
The retail sector is not expected to have a good year in 2020, not a good year at all. Social distancing has a sector already down gasping for breath and looking for a lifeline. Brick and mortar retailers are the worst hit, store closures have them and the malls that house them in fear of bankruptcy and extinction.
But not TJX Companies (TJX). TJX Companies is the parent of TJ Maxx, Ross Stores, and other high-profile discount retailers and it just got an upgrade. And not just one upgrade. The TJX Companies has had a flurry of bullish analyst activity that points to higher prices for the stock in the months ahead.
The Analysts Are More Bullish Than Ever
Over the last 30 days, there has been a notable shift in sentiment as analysts become more bullish on TJX Companies. No analysts have the stock rated a sell while most are rating it at least a buy and many have upgraded. The latest upgrade is from RBC Capital. RBC Capital took the bold step of raising the stock to outperform from sector perform on strength in the balance sheet.
TJX Companies was forced to close its stores last week to combat the spreading coronavirus, RBC Capital thinks the company is well-positioned to weather the storm. TJX expects the closure to last for two weeks. It includes eCommerce and TJX is paying its employees in the meantime so the upgrade is not something to dismiss.
In the last week, Citigroup (C), Nomura, and Wells Fargo (WFC) all maintained already-bullish ratings as did most of the sell-side community. The only downside to the analyst’s calls is they’ve been lowering their price targets. Even so, the consensus target is still above $65 which suggests a 60% upside is possible not counting the dividend.
TJX Companies Has A Deep Moat
When it comes to apparel and home furnishings TJX Companies is well-positioned within a deep moat. The company is a specialist in discontinued, overstock, and close-out items making it a very affordable place to buy household staples with a name brand attached to it. Because it is a leader in the liquidation market, TJ Maxx is often the go-to outlet for top brands that are going out of business. There are lots of name brand retailers going out of business without the pandemic. With the pandemic, TJX will score a windfall of sellable merchandise to drive sales long into the future.
We all know that consumer loves a bargain, JC Penny’s (JCP) attempt at “everyday low prices” proved that beyond doubt. TJX Companies ability to keep prices lower than traditional retailers in a world of ultra-discounting is its core strength. It's why the company was able to deliver a 6% comp in the 4th quarter for the 2nd year in a row. Yes, there are near-term headwinds to profitability but the long-term outlook is stellar. When the consumer comes back out to shop TJX Companies will be one of the first stops.
Until then, the company is working hard to strengthen the balance sheet. It drew down $1 billion of a revolving credit facility to ensure it had proper operating cash until the forecast return to business. The company is paying its employees for the two-week closure so there is a need for cash while the stores are closed. Along with that, TJX is curbing CAPEX plans and reviewing other cost-cutting efforts that will set it up for profits later this year.
The Dividend Is Safe, For Now
TJX Companies is a widely-owned Dividend Aristocrat so investors’ ears were perked at mention the dividend was under review. With 23 years of increases, it would be a big blow to investor confidence if the distribution were cut. Based on the numbers, the dividend looks pretty safe but there is a risk. The company has plenty of cash and a positive outlook for a rebound but that assumes the pandemic ends as forecast. If not, if store closures linger past the two-week timeline, cash-burn could become a problem and the dividend may become a target.
The good news is that the virus seems to be peaking in other portions of the world. China, the epicenter of the outbreak, has been reopening travel and business across the country. Apple (AAPL) and Starbucks (SBUX) are among the high-profile names to announce their stores were reopening. Nike made news today when it beat top and bottom-line consensus and told investors pent-up demand was fueling triple-digit increases in YOY sales.
The Technical Outlook: An Updraft Has Started
Shares of TJX hit a bottom late last week and bounced higher. The stock has been moving higher the last three trading days and looks like it will continue to move higher in the near-term at least. The momentum is still bearish so there is some worry but MACD has peaked consistently with rebounding stocks.
With the MACD histogram in retreat and stochastic indicating a buy it’s likely that price action will move up to test for resistance if not complete a full reversal. The price gaps between $46 and $48 and $52 and $56 offer significant targets for resistance as does the moving average so beware. Any of these could hamper upward price movement so cautious purchasing is suggested until a new bull-market is confirmed. As price action moves higher and surpasses each resistance level additional purchases can be made.