The TJX Companies, Inc.

The stock itself looks like a bargain at just 12.5x forward earnings, a discount to the industry average and its 10-year historical median.

Analysts have been steadily raising its estimates for TJX over the last several months, sending the stock to a Zacks #2 Rank (Buy). Based on current consensus estimates, analysts expect 14% EPS growth in 2012 and 12% growth in 2013.

As the company has delivered record results, it has been rewarding shareholders through aggressive stock repurchases and dividend hikes. It currently yields 1.4%.

Macy's Loss is Consumers' Gain

TJX is an off-price retailer that sells name-brand goods at significant discounts to their full-price peers. It does so by taking advantage of overstocking and canceled orders at its competitors. TJX will buy this excess inventory at a steep discount and pass much of the savings on to its customers.

Its major stores include T.J. Maxx, Marshalls, and HomeGoods stores in the U.S.; Winners Apparel in Canada; and T.K. Maxx in Europe. The company was founded in 1956 and has a market cap of $20.2 billion.

Second Quarter Results

The TJX Companies delivered another strong quarter on August 16. Earnings for the second quarter of its fiscal 2012 came in at 90 cents per share, a penny ahead of the Zacks Consensus Estimate. It was a stellar 23% increase over the same quarter in 2011.

Sales rose 8% to $5.468 billion, slightly ahead of the Zacks Consensus Estimate of $5.461 billion. Same-store sales increased a solid 4% year-over-year on top of a 3% increase last year. Sales were up 11% in the U.S. as cash-strapped consumers continued to hunt for bargains.

Despite fears of rising commodity costs squeezing profit margins, the gross margin at TJX actually improved 70 basis points to 27.3% in the second quarter. This increase was due in part to the leveraging of its occupancy expenses. Meanwhile, the pretax profit margin improved 60 basis points to 10.2%.

Raised Guidance

Management raised its earnings guidance for the remainder of 2012 following strong Q2 results. The company now expects to earn between $3.89 and $3.97 per share on same-store sales growth of 2-3%.

The company noted that it will be significantly increasing its marketing penetration in the second half of the year in order to draw consumers to its stores. Management stated that it is confident in its prospects for the second half of 2011 and its ability to drive sales and profits in the short and long term, through different economic and retail cycles.

Analysts have been revising their estimates higher for both 2012 and 2013, sending the stock to a Zacks #2 Rank (Buy). The 2012 Zacks Consensus Estimate is currently $3.97, at the high end of guidance. This represents 14% growth over 2011 EPS.

The 2013 consensus estimate is now at $4.44, corresponding with 12% EPS growth.

Shareholder-Friendly Management

As TJX continues to produce record results and generate significant free cash flow, it has been returning value to shareholders through stock buy backs and dividend hikes.

In the first half of fiscal 2012, the company spent approximately $673 million buying back its stock, retiring 13.1 million shares. The company expects to repurchase around $1.2 billion of its stock in fiscal 2012.

Moreover, the company has been aggressively increasing its dividend over the last several years. Since 2000, for instance, TJX has raised its dividend at a compound annual growth rate of 22.5%:

It currently yields a solid 1.4%.

Reasonable Valuation

The valuation pictures looks attractive for TJX with shares trading at just 12.5x 12-month forward earnings, a discount to the industry average of 14.7x. Since 2001, TJX has traded at a median forward P/E ratio of 14.4.

The Bottom Line

As U.S. consumers bargain shop in a sluggish economic environment, discount retailers like TJX continue to benefit. Same-store sales are up, profit margins are expanding and earnings estimates are rising. With shareholder-friendly management and reasonable valuation, shares of TJX look like a bargain themselves.

Read the April 1 article here.

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Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research.