Where Will TJX Companies' Stock Be in 1 Year?
Key Points
Equity investors have appeared to largely price in 20% earnings growth for the next year.
If the company continues beating expectations, the share price should have a substantial gain.
It's risky to confidently predict a stock price because no one knows the future. However, despite the challenges, investors should give it a try by making reasonable assumptions, based on what they currently know, and updating them periodically as new information comes in.
Turning to an individual company, retailer TJX Companies (NYSE: TJX) has done well for shareholders. Where can investors expect the stock to land in a year?
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To make that determination, it's time to look closer at TJX's results and expectations for the future.
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Strong results expected to continue
TJX operates the TJ Maxx, Marshalls, and HomeGoods chains. They offer select merchandise, including apparel, beauty, and home fashion, at discounts of 20% to 60%. It can do this by selecting goods that manufacturers need to unload for various reasons.
People always clamor for discounts, but it's able to get more goods and better prices during challenging economic times. With consumers reeling from high prices and an uncertain job market, TJX has been able to draw customers across all of its retail brands.
You can see this in the sales results. Fiscal first-quarter same-store sales (comps) increased 6%, and diluted earnings per share (EPS) grew 29% year over year to $1.19. The period ended on May 2. They exceeded management's expectations, and it now expects 3% to 4% comps growth for the year, and EPS to come in at $5.08 to $5.15. That translates into an EPS gain of 19% to 21% compared to last year's $4.26.
Making calculations
Management's guidance has proven conservative, which is better than investors getting blindsided by TJX's failure to meet overly rosy expectations. That also means there's potential upside to the stock price if earnings continue to exceed expectations.
TJX's trailing-12-month EPS was $4.53. Assuming a 20% increase, the figure will grow to $5.44.
The shares currently trade at a price-to-earnings (P/E) ratio of 29. Applying that multiple to the projected EPS yields a share price of about $158.With TJX's current share price of $151.50 as of June 30, that implies about 4% upside.
That doesn't sound very exciting. But if management can sustain earnings growth at 25% for the next year, EPS will increase to $5.66. If the earnings multiple expands slightly to 30, the stock price would be about $170. That's a more solid 12% gain in the share price. With TJX beating its own expectations, even that 12% could prove conservative if earnings grow even faster.
It's important to focus on the long term, but investors should also monitor results and expectations to measure a company's progress.
Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends TJX Companies. The Motley Fool has a disclosure policy.