The TJX Companies, Inc. (TJX) and Target Corporation (TGT) are two prominent retailers in the U.S. TJX operates as an off-price and home fashions retailer that sells family and home fashions, fine jewelry, accessories, and other merchandise worldwide. It operates through Marmaxx; HomeGoods; TJX Canada; and TJX International. TGT is a discount store retailer that offers general merchandise, including food assortments, apparel, accessories, home decor products, electronics, seasonal offerings, and beauty and household essentials through its stores and digital channels.
Amid high inflation and the possibility of a recession, consumers are rushing to discount stores or off-price retailers that offer merchandise at relatively lower prices. The growing foot traffic at physical stores, strong online presence, and delivery services should help off-price retailers generate solid revenues. The global off-price retail market is expected to grow at an 8.2% CAGR to $474.77 billion by 2028. Therefore, both TJX and TGT should benefit.
TJX is a winner with 2.6% gains over the past week versus TGT’s 31.1% loss. But which of these stocks is a better pick now? Let’s find out.
Recent Financial Results
TJX’s net sales for fiscal 2023 first quarter ended April 30, 2022, increased 13.1% year-over-year to $11.41 billion. The company’s pre-tax income came in at $852.28 million, indicating an 18.2% year-over-year improvement. While its net income increased 10% year-over-year to $587.47 million, its EPS grew 11.4% to $0.49. As of April 30, 2022, the company had $4.30 billion in cash and equivalents.
For the fiscal 2022 first quarter ended April 30, 2022, TGT’s total revenue increased 4% year-over-year to $25.17 billion. The company’s operating income came in at $1.35 billion, representing a 43.3% decline from the prior-year period. Its net earnings came in at $1.01 billion, down 51.9% from the year-ago period. TGT’s adjusted EPS came in at $2.19, indicating a 40.7% year-over-year decline. As of April 30, 2022, the company had $1.11 billion in cash and cash equivalents.
Past and Expected Financial Performance
Over the past three years, TJX’s tangible book value has increased at a CAGR of 3%. TJX’s EPS is expected to increase 11.9% year-over-year in fiscal 2023, ending January 31, 2023, and 13.5% in fiscal 2024. Its revenue is expected to grow 6.7% in fiscal 2023 and 6% in fiscal 2024. Analysts expect the company’s EPS to rise at a 12.8% rate per annum over the next five years.
Over the past three years, TGT’s tangible book value has declined at a CAGR of 1%. Analysts expect TGT’s EPS to decline 34% year-over-year in fiscal 2022, ending January 31, 2023, and rise 39.2% in fiscal 2023. Its revenue is expected to grow 4% year-over-year in fiscal 2022 and 4.2% in fiscal 2023. Analysts expect the company’s EPS to grow at a 19.6% rate per annum over the next five years.
Valuation
In terms of non-GAAP P/E, TJX is currently trading at 19.24x, 5.4% higher than TGT’s 18.26x. In terms of forward EV/Sales, TGT’s 0.81x compares with TJX’s 1.55x.
Profitability
TGT’s trailing-12-month revenue is 2.2 times TJX’s. However, TJX is more profitable, with an 11.5% EBITDA margin versus TGT’s 10%.
Furthermore, TJX’s ROE, ROA, and ROTC of 56.9%, 10.4%, and 15.4% compare with TGT’s 45.5%, 9.9%, and 17.2%, respectively.
POWR Ratings
While TJX has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, TGT has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
Both TJX and TGT have been graded a B for Quality, consistent with their higher-than-industry profitability ratios. TJX’s 56.9% trailing-12-month ROE is 234.1% higher than the 17% industry average. TGT’s 45.5% trailing-12-month ROE is 167.5% lower than the 17% industry average.
TJX has been graded a B in terms of Sentiment, which is in sync with expected earnings growth. TJX’s EPS is expected to grow 11.9% year-over-year to $3.19 for fiscal 2023 ending January 31, 2023. TGT’s D grade for Sentiment reflects its weak EPS estimated by analysts. The consensus EPS estimate of $8.95 billion for TGT’s fiscal 2022 ending January 31, 2023, represents a 34% decline from the prior-year period.
Of the 68 stocks in the B-rated Fashion & Luxury industry, TJX is ranked #21. In contrast, TGT is ranked #31 of 37 stocks in the A-rated Grocery/Big Box Retailers industry.
Beyond what we have stated above, our POWR Ratings system has graded TJX and TGT for Growth, Momentum, Stability, and Value. Get all TJX ratings here. Also, click here to see the additional POWR Ratings for TGT.
The Winner
Rising foot traffic at off-price and discount stores should benefit both TJX and TGT amid the high inflation. However, higher profitability makes TJX a better buy here.
Our research shows that the odds of success increase if one invests in stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Fashion & Luxury industry, and here for those in the Grocery/Big Box Retailers industry.
TJX shares closed at $58.97 on Friday, down $-1.68 (-2.77%). Year-to-date, TJX has declined -21.63%, versus a -17.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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