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Stock Strategist

First-Quarter Weakness Makes This Retail Stock an Attractive Buy

While the market overreacts to low first-quarter comps and EPS thrown off by foreign exchange rates, we continue to believe that TJX is best in class.

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We believe  TJX Companies (TJX) offers investors an attractive domestic and international growth story, strong free cash flow generation, and a proven record of success in both strong and weak economic environments through its T.J. Maxx, Marshalls, HomeGoods, TJX Europe, and TJX Canada stores. With its experienced management team, compelling discounted offerings, and competitive advantage in scale and inventory management, we see low risk in strategy or execution.

We think investors have overreacted to TJX's announcement of first-quarter comps at the low end of guidance, and earnings per share that were slightly off because of foreign currency exchange rates. We continue to believe that TJX is best in class, with lean inventory levels, quick turns, and discounted merchandise at attractive margins--the basis for our narrow moat rating--and that its low-price offering of branded products is compelling to a wide demographic and geographic audience. We think the company is perfectly positioned in this economy to take advantage of both the excess of inventory available and consumer price sensitivity. Overall, we were impressed by the company's ability to manage merchandise margins and inventory levels in a quarter that had significant weather headwinds, and we see no change to our long-term growth projections or our $67 per share fair value estimate. We would recommend buying into the current weakness.

Bridget Weishaar does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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