Shares of The TJX companies (NYSE: TJX) — probably better known to shoppers as TJ Maxx — rose 5.9% by 10:45 a.m. ET after the company said Wednesday morning that it beat both sales and earnings expectations.
Analysts forecast that TJX would earn $0.92 per share on revenue of $13.3 billion for the quarter. In fact, the company earned $0.96 per share and its revenue reached nearly $13.5 billion.
TJX second quarter results
TJX reported a 6% year-over-year increase in second-quarter sales, notably a 4% increase in comparable-store sales (comps). (The rest of the sales gains came from new store openings.) The company then accelerated this rather modest sales growth with a 50 basis point increase in profit margins (now 10.9%), resulting in total 13% growth in the bottom line.
CEO Ernie Herrman said he was “extremely pleased” with his company’s performance, noting that revenue growth has been a stable 6% so far this year and comp growth is picking up. With that in mind, management has decided to raise guidance for the remainder of the year.
Is TJX stock a buy?
What’s strange is how this forecast was raised. Management says revenues will grow only 2 to 3 percent in the third quarter, which would be a slowdown. However, profit margins are expected to increase significantly, to 11.8 or even 11.9 percent — an increase of as much as 100 basis points from the previous quarter, which would lead to earnings per share of about $1.07.
TJX expects full-year comparables to increase 3%, margins to average 11.2% and earnings to be approximately $4.11 per share.
That’s all pretty good news — except for what it means for the stock’s valuation. At a share price of $120, that’s earnings of $4.11, giving it a price-to-earnings ratio of 29. That’s actually a bit much for a company whose revenue is growing at 6%, even as earnings grow twice as fast (in the low double digits).
All in all, I’d say that makes TJX a great company with good growth, but it’s not a cheap stock. Enjoy today’s gains, investor. But at this price, the stock isn’t a compelling buy.
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Rich Smith does not own any stocks mentioned. The Motley Fool recommends Tjx Companies. The Motley Fool has a disclosure policy.
Why TJX Companies Stock Just Jumped 6% was originally published by The Motley Fool
