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Trade Detector - 2014 Idea #86 TJX Companies

Trade Detector - 2014 Idea #86 TJX Companies

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Trade Detector - 2014 Idea #86 TJX Companies
Trade Detector - 2014 Idea #86 TJX Companies

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EQUITY ONE MODEL February 14, 2014
1
 
WWW.SPCAPITALIQ.COM
February 14, 2014 Gary F. Albanese, CFA, CMT
Senior Director
Global Markets Intelligence gary.albanese@mhfi.com
The S&P Capital IQ Global Markets Intelligence group, formerly known as the S&P Valuation and Risk Strategies research group, is analytically and editorially independent from any other analytical group at S&P. The objective of this group is to provide unique financial intelligence by analyzing relationships across multiple asset classes and markets. Enabled with cutting-edge S&P Capital IQ and third-party applications and data, the group offers investors valuable new sources for alpha discovery and "out-of-the-box" thinking through robust data exploration and analysis. The research provides investors with actionable and topical market perspectives that can offer innovative ways to leverage credit and risk intelligence.
Trade Detector
FROM GLOBAL MARKETS INTELLIGENCE
Equity One Model
BULLISH: TJX
2014 Idea No. 8678664564 
TJX Companies, Inc. (TJX) Date: February 14, 2014 Price: $59.87 Time of Report: 3:52 p.m. EST Rationale: In our view, TJX shares continue to offer upside potential ahead of the
company’s
 late February earnings announcement.
 The TJX Companies, Inc. (TJX) continues to be a leading off-price retailer through its T.J. Maxx, Marshalls, and HomeGoods stores in the U.S., as well as operations in Canada and Europe. As of November 2, the company operated 3,212 stores, most of which are located within the U.S.
 TJX shares outperformed the S&P 500 index over the least year, rising 33.1% compared to 20.3% for the S&P 500 index (see chart). Since our October 23 report (Trade Detector #447), TJX shares are 2.5% higher.
 TJX is scheduled to report its 4Q14 & FY14 (Jan. 31) results on February 26. For 4Q14, TJX is expected to report a 1.7% increase in revenue to $7.88 billion from $7.75 billion and earn $0.83 per share, up from $0.82 during 4Q13. As mentioned in its prior earnings call, the company expects 1% to 2% same stores sales growth in the period
 Since our October
23 report, TJX’s consensus estimates rose slightly, with its FY14
EPS increasing $0.03 to $2.88. However, they are slightly
below management’s
guidance range of $2.91 and $2.94, which is based upon 3% same store sales growth for the year. If the company meets its own guidance, it could have positive implications for the shares.
 Also,
TJX’s
EPS estimates rose by $0.03 to $3.26 for FY15 and by $0.06 to $3.65 for
FY16. TJX’s long
-term consensus annual growth expectation remains 12%. We expect continued store expansion as well as the current popularity of its retail format to help TJX to achieve its expected earnings growth.
 
TJX’s 19.
0x forward P/E multiple is a premium to its 16.3x peer group average forward multiple but it has contracted slightly from the 19.3x multiple recorded at the time of Trade Detector #447. Using a 19x average forward multiple, near its current multiple, in conjunction with a $3.46
average of TJX’s FY15 and FY16 consensus EPS estimates, we’re raising our TJX target price to $6
6 from $65, which represents about 10% of potential upside. TJX also issues a $0.145 quarterly dividend which equates to an annual amount of $0.58 or an annual dividend yield of 1.0%.
 
Risks for TJX include changes in the consumer’s disposable income and tastes, the
ability to acquire suitable inventory at appropriate prices, and competitive pricing.  Atypical weather patterns could also affect customer interest in seasonal goods and
necessitate discounting that could affect margins. TJX’s shares are also at risk if its
valuation reverts towards its 14.6 x average forward P/E multiple since 2008.
 
TRADE DETECTOR
EQUITY ONE MODEL February 14, 2014 2
WWW.SPCAPITALIQ.COM
TJX Companies
 Share Performance versus S&P 500 (One Year)
 
Source:
S&P Capital IQ (a 5 Year chart is available on S&P Capital IQ)
. Disclosure:
Past performance is not indicative of future returns. Indexes are unmanaged, statistical composites and their returns do not include payment of any sales charges or fees an investor would pay to purchase the securities they represent. Such costs would lower performance. It is not possible to invest directly in an index.
Glossary
Equity One Model:
 The investment objective of the Trade Detector Equity One Model is capital appreciation with a secondary objective of income. The Equity One Model is an equity long strategy that utilizes four separate quantitative strategies with selection criteria based
on fundamental factors including proprietary S&P Capital IQ research and Standard & Poor’s credit ratings. The four
separate strategies are: S&P Competitive Advantage, S&P Dividend and Income Growth, S&P Total Yield, and S&P Intrinsic Value. Each strategy selects 30 stocks from the S&P 500 index. The selections from each strategy are combined and duplicate stocks are eliminated. The total number of selected investments may vary from month to month. Equity One Model rebalances at the beginning of each mon
th based on the prior month’s data, and a new list of stocks is established. This list of stocks is compiled in a monthly sto
ck selection list that is generated at the beginning of each month.
Consensus Price Target Model:
 The investment objective of the Trade Detector Consensus Price Target is capital appreciation. The Consensus Price Target Model is an equity long strategy that selects stocks from the S&P 500 index. At the beginning of each month, the model compares Capi
tal IQ’s 12
-
month forward looking consensus target price to the company’s prior month’s closing stock price.
The stocks are ranked from the highest to lowest differential between the consensus target prices and the closing stock prices. These rankings are compiled in a monthly stock selection list that is generated at the beginning of each month.
Monthly Stock Selections:
 Lists that compile stocks that meet criteria established in Equity One Model and Consensus Price Target Model
(together, the “Models”)
. Separate lists are created based on the model.
Bullish:
The Models
rebalance at the beginning of each month based on the prior month’s data
. A new Monthly Stock Selection list is established for the
 Equity One Model,
and c
ompared to the prior month’s
list, stocks that remain in and/or are added to the new list are considered Bullish.
Consensus Price Target Model 
 ranks stocks in quintiles. The rankings are compiled in a monthly stock selection list that is generated at the beginning of each month. At inception, the selection list comprised the top 100 stocks known as the first quintile. After rebalancing each month, new stocks are added to the selection list if they are within the first quintile. A stock is considered Bullish if remains on the selection list if it is in the first or second quintile.
Exit:
The Models
rebalance at the beginning of each month based on the prior month’s data
. A new Monthly Stock Selection list is established for the
 Equity One Model,
and c
ompared to the prior month’s list,
stocks that are no longer in the list are considered Exit.
Consensus Price Target Model 
 ranks stock in quintiles. Stocks on the prior
month’s list dropping to the third, fourth or fifth quintile are excluded from the new list. Compared to the prior month’s list, stocks deleted are considered
Exit.
Required Disclosures
 
TRADE DETECTOR
EQUITY ONE MODEL February 14, 2014 3
WWW.SPCAPITALIQ.COM
Trade Detector Reports are series of reports and monthly stock selection lists that are based on two different quantitative methodologies. One methodology is based on the Consensus Price Target model, while the other methodology is based on the Equity One Model that utilizes four separate quantitative strategies. An individual report will only reflect one methodology. Trade Detector Reports are
 prepared by S&P Capital IQ’s Global Markets Intelligence group (“GMI”), which is analytically and editorially independent fro
m any
other analytical group at Standard & Poor’s Financial Services LLC (“S&P”) or its affiliates.
 
S&P Capital IQ Trade Detector Distribution as of December 31, 2013 Ranking (North America) Bullish Exit Total
Equity One Model Number of Stocks 145 15 160 Equity One Model
 Distribution %
90.6% 9.4% 100% Consensus Price Target Model Number of Stocks 137 70 207 Consensus Price Target Model
 Distribution %
 100%
All of the views expressed in Trade Detectors Reports reflect GMI’s research models and equity analysts’ opinions regarding
any and all of the
subject securities or issuers. No part of GMI’s compensation was, is or will be directly or indirectly, related to
the specific recommendations or views expressed in Trade Detector Reports. Reports may be updated based on changes in the markets and company fundamentals.
S&P Capital IQ also produces STARS Stock Reports and Quantitative Stock reports. These reports rank stocks in accordance with the following ranking methodologies:
STARS Stock Reports:
 S&P
Capital IQ’s qualitative STARS recommendations
are determined and assigned by S&P Capital IQ equity analysts.
Quantitative Stock Reports:
S&P Capital IQ’s quantitative evaluations are derived from S&P Capital IQ’s proprietary Fair Value
quantitative ranking model. The Fair Value Ranking methodology is a relative ranking methodology. As a quantitative model, Fair Value relies on history and consensus estimates and does not introduce an element of subjectivity.
Trade Detector Reports, STARS Stock Reports and Quantitative Stock Reports:
The methodologie
s used in Trade Detector Reports, STARS Stock Reports and Quantitative Stock Reports (collectively, the “Research Reports”) reflect different criteria, assumptions and analytical methods and may have differing recommendations.
 S&P Capital IQ believes that the methodologies and data used to generate the different types of Research Reports are reasonable and appropriate. Generally, S&P Capital IQ does not generate reports with different ranking methodologies for the same issuer. However, in the event that different methodologies or data are used on the analysis of an issuer, the methodologies may lead to different views or recommendations on the issuer, which may at times result in contradicting assessments of an issuer. S&P Capital IQ reserves the right to alter, replace or vary models, methodologies or assumptions from time to time and without notice to clients.
STARS Stock Reports: S&P Capital IQ Global STARS Distribution as of December 31, 2013 Ranking North America Europe Asia Global
Buy 36.4% 37.1% 34.4% 36.3% Hold 54.1 41.3 59.2 52.5 Sell 9.5 21.6 6.4 11.2 Total 100.0% 100.0% 100.0% 100.0%
STARS Stock Reports are prepared by the equity research analysts of Standard & Poor’s Investment Advisory Services LLC (“SPIAS”). All of the views expressed in STARS Stock Reports accurately reflect the research analyst’s personal views
regarding any and all of the subject securities or issuers. Analysts generally update stock reports at least four times each year. Quantitative Stock Reports:
 
The Fair Value ranking distribution is a fixed distribution based on relative weightings as described in the Glossary section of the reports under S&P Capital IQ Fair Value Rank. Certain reports with Fair Value Rank do not have a Buy/Hold/Sell recommendation, for ranking definition please refer to the Glossary section of the respective report. The Fair Value Ranking distribution includes all the stocks that have S&P Fair Value Ranking. Quantitative Stock Reports are prepared by the equity research group of SPIAS. All of the views expressed in these reports
reflect S&P Capital IQ’s research models output regarding any and all of the subject securities or issuers. Quantitative Stoc
k Reports are updated daily. Quantitative Stock Reports rely on the availability of data and therefore SPIAS do not provide a report when sufficient data is not available. STARS Stock Reports and Quantitative Stock Reports:
No part of analyst compensation and SPIAS’ compensation was, is, or will be, directly or
indirectly, related to the specific recommendations or views expressed in Stock Reports and/or Quantitative Stock Reports, as applicable.
About S&P Capital IQ’s Distributors:
S&P Capital IQ’s Research Reports have been prepared and issued by S&P Capital
IQ and/or one of its affiliates. In the United States, Research Reports are prepared by SPIAS and issued by S&P. SPIAS is authorized and regulated by the U.S. Securities and Exchange Commission; in the United Kingdom, Research Reports are issued by McGraw-
Hill Financial Research Europe Limited (“MHFRE”),
which is authorized and regulated by the Financial Conduct Authority
(“FCA”)
and trades as S&P Capital IQ; in Hong Kong, by

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