The TJX Companies, Inc. (NYSE: TJX) is indicated lower on a valuation downgrade. It is not so much the fundamentals, but Goldman Sachs has removed the discount retailer of close-out items and brand-name items dow to Neutral from Buy.
More important is that Goldman Sachs removed the retailer from the prized Conviction Buy List. If you consider that the price is $66.46 versus a 52-week trading range of $45.26 to $66.95 and that the consensus price target from Thomson Reuters before this call was $67.95, the downgrade makes sense.
Shares have outperformed many expectations even if its story remains a secular story. Consumers want a deal, and it is a fact that you can buy many name-brand apparel items at T.J. Maxx or at Marshalls often for one-third or half of the price if you went to a department store or another retail full price destination.
It is also not just clothing and accessories. Count luggage, some packaged food items, furniture, and household decorative goods in the mix. You never know what sort of deal you will find there.
The same secular drivers here is partially tied to the growth of the dollar stores in consumers’ lives. The secular story is far from over, but what investors are willing to pay for it may have to come with an adjustment. Discount stores used to trade often at discounts to regular retailers, but right now many discounters are trading at a premium earnings multiple.
JON C. OGG
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