Bargain retailer TJX strategically placed to navigate a recession, JPMorgan says

Published Mon, Oct 17 20223:27 PM EDT

TJX Companies (TJX) is competitively positioned to weather an economic slowdown, JPMorgan said Monday, underscoring the Club case for owning the off-price retailer. JPMorgan analysts added TJX — whose brands include T.J Maxx, Marshalls and HomeGoods — to their "Analyst Focus List," while reiterating an overweight rating and a Dec. 2023 price target of $80 a share. TJX stock, which is down about 13% year-to-date, was trading up more than 4% in midday trading Monday, at roughly $66.23 a share. The company's bargain department stores have historically remained appealing to shoppers during times of economic uncertainty, ranking TJX within "the top 10 percentile of consumer discretionary equity performance during an economic slowdown/contraction," the analysts wrote. Wall Street's take TJX has benefited greatly from an apparel inventory glut it's been able to tap into and then turnaround to bargain shoppers at lower prices. That's helped to insulate the retail operator from a recession, JPMorgan analysts argued, and should allow management to make good on its promise to expand merchandise margins within the next three years. TJX's partnership with 21,000 global vendors has proved a key advantage, providing the company with a better mix of brand names compared to last year, according to the analysts, while allowing it to cater to a "higher-income demographic." Many of these brand names, including Canada Goose, Vince, Calvin Klein, Tommy Hilfiger, and Michael Kors, helped bolster sales in the last quarter, JPMorgan fieldwork showed. At the same time, T.J. Maxx and Marshall's core middle-to-high-income shoppers remain "relatively more resilient" to economic headwinds than other bargain retailers like Ross Stores (ROST) and Burlington Stores (BURL). Still, JPMorgan warned that a worsening economic outlook, coupled with a potential uptick in unemployment, could weigh on consumer spending and force the bank to revise its rating and price target for TJX. "A greater-than-expected downturn in household spending could cause sales trends to decelerate below our current assumptions, rendering our estimates too high," the analysts wrote. The Club take As name-brand retailers liquidate their excess merchandise and cancel orders, TJX should be there to opportunistically scoop up high-quality brands at discount prices. This is exactly why we initiated a position in TJX in August, with the foresight the company would benefit from a flush of designer names. We're upbeat that TJX can capture high-quality merchandise at the best prices the company has seen in years, and this should help boost its margins at a time when other retailers are struggling. TJX stock was also one of the best performers in the Club portfolio in the third quarter, gaining 11.4%, a sign the market is gaining appreciation for the off-price chain operator. We're happy to see the stock up in the wake of the JPMorgan note Monday, but we're not going to buy more shares here. As always, we don't like to chase a stock on its way up — we'd rather wait for a pullback to add to our position. TJX is set to report fiscal third-quarter results for 2023 on Nov. 16. (Jim Cramer's Charitable Trust is long TJX. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Shoppers come and go the TJ Maxx store at the Mall at Prince George's on August 17, 2022 in Hyattsville, Maryland.

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