TJX Unusual Option Activity Report

It’s hard to imagine that TJX Companies (TJX), which had to close all of its stores and furlough its employees, is near a 52-week high, but it is. After all, this is a single channel brick and mortar company owns stores like T.J. Maxx, Marshall’s, and Home Goods. TJX is an off-price retailer that entices customers with a “treasure hunt” experience. Despite the store closures, TJX appears well positioned in a post-COVID world.

TJX Option Activity

Their position in the retail space and future prospects may be what option traders were looking at on Wednesday. Despite the large call trade that was made, the stock finished virtually unchanged for the day. Here’s the details of the trade:

• 3,000 18 DEC 20 $55 call BOT @ $3.60 in one print

The strike selection was at-the-money but is still reflective of bullish interest. The breakeven price on the trade is $58.60 with 57 days left to expiration. The notional value of the trade is $1.08 million, which isn’t exactly pocket change.

TJX Analyst Expectations

The company has been materially impacted by COVID based the earnings projections for TJX on Yahoo! Finance,. The current year 2021 EPS estimates are $0.14 on a 21% decline in revenues. That’s a far cry from 2020s $2.67. Looking at 2021, EPS is expected to come in at $2.53 on a 29% increase in revenue. That’s not exactly getting back to where it started, but it’s close.

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The EPS trend for the current quarter and for the 2021 fiscal year hasn’t looked good either. In the past 90 days, the current quarter EPS estimate has been revised lower from $0.56 to $0.38. That’s all since its last earnings report that missed estimates by 80%. Earnings have been negatively revised for the 2021 fiscal year from $0.42 to its current projection of $0.14.

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The 5-year projected EPS for TJX is only 2.1% compared to 10.68% in the previous five years.

Given these trends, is this really a company that is a good buy right now?

TJX Valuations

A quick look at the current valuations of TJX on Morningstar shows that this company isn’t exactly a screaming value right now. Certainly, valuation measure that utilize EPS or EBITDA will appear inflated, but what about other non-earnings-based measures?

The company is currently trading at a price-to-book value ratio of 14.15. That is high on its own merit but is higher than the 5-year average of 11.61. The company’s price-to-sales multiple of 1.97 is similarly higher than the 5-year average of 1.63.

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TJX Trade Opportunity

The potential for price appreciation in TJX comes down to one thing. Will the company blow away the estimates and upwardly revise their guidance [when it reports mid-November] ? Of course, that’s impossible to know for sure, and frequenting the store may not give you the relevant information needed to arrive at an answer.

The potential upside in TJX comes down to two major factors. The first is whether the treasure hunt, brick-and-mortar experience is dead in a post COVID world. The second factor is the retrenchment of consumers, the lack of spending options, and the closures of small business. Have consumer trends become more concentrated in fewer, publicly-traded retail names?

Conclusion

My thought process is that the treasure hunt experience isn’t dead and consumer trends have shifted consumption to fewer companies. If that is, in fact, the case, there may be the chance for a significant earnings beat in its report next month. It’s also true that investors may bid the price higher before the event in anticipation of an earnings beat.

That means that they may be an opportunity to trade a potential pre-earnings run in TJX. That appears to be what the unusual option trade is doing.