Breaking News
Investing Pro 0
Last Call for Cyber Monday! Save Now on Claim 60% OFF

TJX: Avoid Recent Headwinds In Discount Retailer's Stock With Cash-Secured Puts

By Investing.com (Tezcan Gecgil/Investing.com )Stock MarketsMar 30, 2022 20:15
ph.investing.com/analysis/tjx-avoid-recent-headwinds-in-discount-retailers-stock-with-cashsecured-puts-108174
TJX: Avoid Recent Headwinds In Discount Retailer's Stock With Cash-Secured Puts
By Investing.com (Tezcan Gecgil/Investing.com )   |  Mar 30, 2022 20:15
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
ROST
-0.84%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
TJX
-1.09%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DJUSRT
-0.52%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
BURL
+0.08%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
  • Leading discount apparel and home fashions retailer TJX stock is down more than 16.5% since the beginning of 2022
  • Rise in wages and freight costs have meant headwinds for TJX shares
  • Long-term investors could consider buying the dips in TJX stock

Shareholders in retailer TJX (NYSE:TJX) have seen the value of their investment drop close to 5% over the past 52 weeks and 16.7% so far this year. By comparison, the Dow Jones US Retail Index is up 7.2% in the past 12 months, but down 7.1% year-to-date.

TJX Weekly Chart.
TJX Weekly Chart.

Meanwhile, two other off-price retailer stocks—Ross Stores (NASDAQ:ROST) and Burlington Stores (NYSE:BURL)— are down 16.9% and 33.1% respectively since the beginning of this year.

On Jan. 4, TJX shares went over $77, hitting a record high. However, on Mar. 8, the stock saw a 52-week low of $57.92, dropping more than 24% in about two months.

As we write on Tuesday, intraday, shares are changing hands at $63.20. The stock’s 52-week range has been $57.92-$77.35, while the market capitalization currently stands at $75.4 billion.

How Recent Metrics Came In

TJX is a prominent off-price apparel and home fashions retailer whose well-known retail outlet brands include Marshalls, T.J.Maxx/TK Maxx, HomeGoods, Sierra, and Winners. It has more than 4,500 stores worldwide.

Around a quarter of US consumers shop at T.J.Maxx stores. Meanwhile, close to 10% of shoppers visit a T.J.Maxx store for most of their holiday shopping. Therefore, Wall Street pays close attention to the performance of TJX shares.

Management released Q4 FY22 figures on Feb. 23. The retailer reported $13.9 billion in revenue, implying a 27% increase year-over-year. Net profit for the quarter was $940.2 million or 78 cents per diluted share. A year ago, it had been 81 cents per share.

On the results, CEO Ernie Herrman said:

For the fourth quarter, we saw a 13% open-only comp sales increase for the U.S... Fourth quarter sales were trending higher before the surges in Omicron.”

Management now expects Q1 FY23 diluted EPS to be in the range of 58-61 cents, compared with 44 cents in the previous year.

Prior to the release of the quarterly results, TJX stock was around $62.50. Now, at $63.20 intraday, the current price supports a dividend yield of around 1.60%.

Next Move In TJX Stock?

Among 27 analysts polled via Investing.com, TJX shares received an “outperform” rating, with an average 12-month price target of $80.04. Such a move would imply an increase of well over 26% from the current level. The target range is between $60 and $95.

Consensus Estimates of Analysts Polled By Investing.com.
Consensus Estimates of Analysts Polled By Investing.com.

Source: Investing.com

Similarly, according to a number of valuation models like those that might consider P/E or P/S multiples or terminal values, the average fair value for TJX Companies stock on InvestingPro stands at $77.77.

Valuation Models By InvestingPro.
Valuation Models By InvestingPro.

Source: InvestingPro

Readers who watch technical charts might be interested to know that a number of TJX’s intermediate- and long-term oscillators are oversold. Although they can stay extended for weeks—if not months—the decline in price could also be coming to an end.

Our expectation is for TJX to continue to find strong support at the $60 level. Although it might initially dip below it, shares are likely to bounce back before too long. Afterward, TJX stock would likely trade sideways, possibly between $60 and $65 while it establishes a new base.

Cash-Secured Puts On TJX

Price Intraday: $63.20

Investors who are not concerned with daily price moves, and who believe in the long-term potential of the company, could consider investing in TJX stock now. They could expect the shares to make a move toward $77.77, or the fair value estimate given by various models.

Those who are experienced with options could also consider selling a cash-secured put option in TJX stock—a strategy we regularly cover. As it involves options, this setup will not be appropriate for all investors.

Such a bullish trade could especially appeal to those who want to receive premiums (from put selling) or to possibly own TJX shares for less than their current market price.

A put option contract on TJX stock is the option to sell 100 shares. Cash-secured means the investor has enough money in his or her brokerage account to purchase the security if the stock price falls and the option is assigned. This cash reserve must remain in the account until the option position is closed, expires, or is assigned, which means ownership has been transferred.

Let's assume an investor wants to buy TJX stock but does not want to pay the $63.20 per share price at the time of writing. Instead, the investor would prefer to buy the shares at a discount within the next several months.

One possibility would be to wait for TJX stock to fall further, which it might or might not do. The other possibility is to sell one contract of a cash-secured TJX put option.

So, the trader would typically write an at-the-money (ATM) or an out-of-the-money (OTM) put option and simultaneously set aside enough cash to buy 100 shares of the stock.

Let's assume the trader is putting in this trade until the option expiry date of July 15, 2022. As the stock is $63.20 at the time of writing, an OTM put option would have a strike of $60.

So, the seller would have to buy 100 shares of TJX at the strike of $60 if the option buyer were to exercise the option to assign it to the seller.

The TJX July 15 60-strike put option is currently offered at a price (or premium) of $2.70.

An option buyer would have to pay $2.70 X 100, or $270, in premium to the option seller. This premium amount belongs to the option seller no matter what happens in the future. The put option will stop trading on Friday, July 15.

Assuming a trader would enter this cash-secured put option trade at $63.20 now, at expiration on July 15, the maximum return for the seller would be $270, excluding trading commissions and costs.

The seller's maximum gain is this premium amount if TJX stock closes above the strike price of $60. Should that happen, the option expires worthless.

If the put option is in the money (meaning the market price of TJX stock is lower than the strike price of $60) any time before or at expiration on July 15, this put option can be assigned. The seller would then be obligated to buy 100 shares of TJX stock at the put option's strike price of $60 (i.e. at a total of $6,000).

The break-even point for our example is the strike price ($60) less the option premium received ($2.70), i.e., $57.30. This is the price at which the seller would start to incur a loss.

Cash-secured put selling is a moderately more conservative strategy than buying shares of a company outright at the current market price. This can be a way to capitalize on the likely choppiness in TJX Companies' stock in the coming weeks.

Investors who end up owning TJX shares as a result of selling puts could consider setting up covered calls to increase the potential returns on their shares. Thus, selling cash-secured puts could be regarded as the first step in stock ownership.

TJX: Avoid Recent Headwinds In Discount Retailer's Stock With Cash-Secured Puts
 

Related Articles

TJX: Avoid Recent Headwinds In Discount Retailer's Stock With Cash-Secured Puts

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email