A Look at Off-Price Retailers’ Valuations

On April 25, 2017, TJX Companies (TJX), Ross Stores (ROST), and Burlington Stores (BURL) were trading at 12-month forward PE[1. price-to-earnings] ratios of 20.2x, 20.6x, and 25.1x, respectively. These off-price retailers are trading at higher valuation multiples compared to the S&P 500 Index’s 12-month forward PE of 18.7x.

However, the valuations of these off-price retailers were lower than the S&P 500 Consumer Discretionary Index, which was trading at a 12-month forward PE of 39.5x.

The 12-month forward PE differs among companies based on parameters such as growth expectations, leverage, and risk-return profiles.

Currently, analysts expect TJX Companies’s sales to rise 7.4% to $35.6 billion in fiscal 2018.[2. fiscal year ended February 3, 2018] The company’s adjusted earnings per share (or EPS) are expected to grow 10.6% to $3.91 in fiscal 2018. Note that adjusted EPS excludes the impact of one-time items.

For the comparable fiscal year, Ross Stores’s sales are forecasted to rise 7.3% to $13.8 billion, and its adjusted EPS is expected to grow 11.3% to $3.15.

Burlington Stores’s sales are expected to grow 8.6% to $6.0 billion in the current fiscal year. The company’s adjusted earnings per share are expected to rise 20.2% on a year-over-year basis to $3.89 in fiscal 2017.[3. fiscal year ended February 3, 2018]

TJX Companies, Ross Stores, and Burlington Stores together account for 1.9% of the First Trust Consumer Discretionary AlphaDEX ETF (FXD).

In the concluding part of this series, we’ll examine analysts’ recommendations for off-price retailers.