Why This Company Has Upside Potential: The TJX Companies, Inc. (TJX)

For now, TJX and its rival off-price retail rival Ross Stores, Inc. (NASDAQ:ROST) both have good prospects. Both are expanding their home goods operations (I note TJX raised its long term view of Home Goods stores from 750 to 825), and with a stronger housing market this strategy makes sense. Ross Stores saw comparable same store sales up 6% in the last quarter, and I would expect it to report good numbers in its forthcoming results.

Where Next for TJX Companies?

Internal full year guidance is for 3-5% revenue growth and EPS of $2.66-2.78 when analysts have 5.9% and $2.84 penciled in. TJX has upside from its European expansion plans (Germany is doing particularly well), Home Goods and its nascent e-commerce operations. All of which, of course, are being rolled out conservatively.

Moreover, its business model is highly cash generative with $4.45 billion generated in free cash flow over the last three years. This is while capital expenditures have averaged 1.7x depreciation in that period as TJX invests in rolling out new stores and remodeling existing outlets. With a current enterprise value of $30.7 billion I think the stock is cheap. Happy to hold.

The article Why This Company Has Upside Potential originally appeared on Fool.com and is written by Lee Samaha.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.