Morgan Stanley Rates TJX a Buy After Stock Slump
Morgan Stanley reiterates an Overweight rating and a $178 price target on TJX stock, arguing recent sales weakness is fixable and the diversified portfolio
Morgan Stanley analyst Alex Straton has reiterated an Overweight rating on The TJX Companies (TJX) stock with a $178 price target. The call comes after TJX shares fell roughly 16% over the past month, driven by soft sales in its largest division.
Straton, who leads Morgan Stanley's softlines and off-price retail coverage, frames TJX as a "consumer compounder." This refers to a business that can grow profits steadily across economic cycles. The Overweight rating means the bank expects the stock to outperform its retail peers over the next 12 to 18 months. The $178 target implies a potential gain of about 35% from the stock's early-September price near $131.
What Went Wrong at Marmaxx
The recent stock pressure stemmed from TJX's flagship Marmaxx division, which combines TJ Maxx, Marshalls, and Sierra. Comparable sales there grew just 1% in the second quarter, a significant slowdown. Morgan Stanley identifies three specific, fixable problems rather than a fundamental breakdown.
First, understaffing and disorganized backrooms left inventory stuck in storage instead of on sales floors, creating empty shelves. Second, Marmaxx missed trends in everyday apparel basics and was late on back-to-school merchandise. Third, the bank's tracking of Reddit discussions found shopper complaints about damaged beauty product packaging, a typically high-margin category. Straton also questions whether Marmaxx's low-price reputation is fading as other retailers cut prices more aggressively.
CEO Ernie Herrman called the shortfall "self-inflicted and within our control," according to a report from Investing.com.
Strength Across the Broader Portfolio
Despite the Marmaxx stumble, TJX's overall results exceeded expectations. The company reported a 4% rise in total comparable sales. Adjusted earnings per share climbed 11% to $1.22, beating the $1.19 analysts expected. Management also raised its full-year profit outlook.
Other divisions performed strongly, offsetting Marmaxx's weakness. HomeGoods, TJX Canada, and TJX International each posted comparable sales growth between 6% and 7%. The company's adjusted pre-tax margin widened to 11.9%, an increase of 50 basis points. Management increased its long-term store target by 500 locations, to a total of 7,500 stores.
| Division | Comparable Sales Growth |
|---|---|
| Marmaxx | 1% |
| HomeGoods | 7% |
| TJX Canada | 6-7% |
| TJX International | 6-7% |
The Path to Recovery and Key Risks
TJX management stated that Marmaxx performance improved in August and expects comparable sales there to recover to 2-3% growth by the fourth quarter. Achieving this will require increased spending on store labor, marketing, and competitive pricing. The company also flagged higher fuel and freight expenses for the second half of the year and noted a 7% increase in inventory heading into the holidays.
Morgan Stanley's $178 price target represents the midpoint of two modeled scenarios. A bull case of $197 assumes TJX fixes Marmaxx quickly. A base case of $158 assumes execution problems persist. The bank's message is that one weak quarter does not undo the investment case for a diversified retailer that beat expectations and raised guidance while its biggest division struggled.
The primary risk is that if Marmaxx sales remain slow through the holidays and higher operating costs squeeze profits, the base case target becomes more likely. For now, Morgan Stanley's buy call hinges on whether TJX can restock its shelves effectively before peak shopping seasons. The company's management says the fix is already in motion.
