Shares of The TJX Companies (TJX 1.37%), a leading off-price retailer of apparel, home furnishings, and other consumer products, jumped over 13% higher Wednesday morning after an analyst rating continued a recent trend.
Analysts can be right, and analysts can be wrong, and savvy investors should take any upgrade or downgrade with a grain of salt -- but it is worth paying attention to what analysts have to say. RBC Capital analyst Kate Fitzsimons upgraded TJX from sector perform to outperform. Despite the upgrade, Fitzsimons moved the price target from $64 per share down to $45. In a note to investors, Fitzsimons explained that while COVID-19 will likely be a speed bump, TJX's still has long-term market share opportunities. An upgrade plus a price target demotion has been a recent trend: Citi analyst Paul Lejuez lowered the price target on TJX from $70 per share down to $57, but kept a buy rating, and Michael Baker, an analyst at Nomura Instinet, also kept a buy rating on shares but lowered the target from $70 per share down to $58.
There's an interesting balancing act here for investors. On one hand, in the near term COVID-19 is going to send sales for discretionary-based retailers lower as consumers focus on necessities and consumer staples. There simply isn't any way to avoid a sales decline when TJX announced last week it would close all its stores in the U.S., Canada, Europe, and Australia for two weeks, as well as temporarily closing distribution centers and offices. However, on the other hand, TJX stores tend to do better when traditional, and higher-priced, retailers struggle -- and as you can see in the graph below, TJX has declined far less than traditional retailers.
It's possible that once stores open back up and consumers get back into the world for discretionary goods, TJX could rebound or benefit more than traditional retailers. The trend with analysts is clear, that the near-term price targets are lower as the company faces store closures, a suspended stock repurchase program, a potential disruption to its dividend program, and preparation to cut capital expenditures. Despite lowered price targets and near-term headwinds, analysts also shared the belief that TJX is well positioned to thrive in the long term and capture market share, and that should be more important to savvy long-term investors.