TJX Companies (NYSE: TJX) rallied strongly over the last few months but peaked following the Q4 release. The post-earnings action forms an ominous candle pattern that could lead to a significant correction. The pattern is a Shooting Star, usually a strong signal of market reversal, but there are more reasons than one to think the sell-off won’t get very far and new highs will be set this year.

Among them are improved margins and an outlook for growth that drives robust capital returns. The TJX Companies announced a dividend share repurchase increase for 2024 that will provide value for investors. Another is the apparent strength in off-price retail. The TJX Companies produced industry-leading growth for retail. 

The dividend is below average compared to S&P 500 stocks but safe and growing. The 35% payout ratio and earnings growth allowed the board to approve a 13% increase in 2024. Repurchases reduced the share count by 1.6% in 2023 and are expected to be stronger in 2024. The forecast is $2 to $2.5 billion in purchases, $2.25 billion at the midpoint, or about 2.2% of the market cap. Together, dividends and repurchases will annualize to 3.5% of the share price, and the company will build equity. 

Cash flow in Q4 and 2023 was solid at $2.8 billion for the year. That allowed the company to build its cash position while investing in inventory and managing its debt. Long-term debt is only 0.4X equity, and equity is growing. Operating activities increased equity by 15%; another solid year of cash flow is expected in 2024. With no encumbering debt, the company is well-positioned to maneuver in 2024 despite concerns about where growth will come from over the long term. 

The TJX Companies Offers Mixed Report, Market Falters

The TJX Companies had a solid quarter, but results are mixed relative to analysts’ forecasts. The $16.41 billion in revenue is up 13% YOY and beat consensus by 130 basis points, but adjusted earnings are only as expected. This reflects a weaker-than-expected margin, but the bar was set high. Margin expanded by triple digits and led to accelerated growth on the bottom line, which is the salient detail for investors. 

The topline strength is due to an extra week this year, but the organic growth is also solid and due entirely to traffic. Comps are up 5% across the system, led by a 7% increase at HomeGoods and a 6% gain in Canada. Sales at Marmaxx, the core business, are 5% GAAP and 10% on an open-only basis; International, a possible avenue for growth, gained 3%. 

The margin news is good and includes the impact of less shrinkage. The adjusted operating margin widened by 170 basis points to 10.9%, ahead of company targets, aided by reduced costs. Guidance for the year is also good and forecasts 2% to 3% revenue growth and sustained margin. The Q1 guidance forecasts the margin to fall by 30 to 40 bps but improve sequentially, ending the year at 10.9% to 11.0%. 

The Analysts Are Leading TJX Stock Higher 

Analyst activity is light following TJX Companies' Q4 release, but it is bullish. Marketbeat is tracking one reiterated, and one boosted price target that comes with Outperform ratings. Telsey Capital Management and BMO analysts see this stock moving above the consensus target of 2% above the post-release action. However, the consensus is up 20% in the last twelve months, leading the market. 

The Technical Outlook: TJX Falls, But the Uptrend Is Intact

The price action in TJX Companies is lower following the release, but the uptrend is intact. The market could fall another 2% to 3% and not be in grave danger of breaking it. The primary target for solid support is the short-term moving average near $97.50. A move below that may be bearish, but even then, a rebound to new highs is still expected. Assuming the 30-day EMA provides support, this market could return to an all-time high before summer.