TJX: Taking TJX higher on our Position Monitor as our conviction long-side is growing in the face of near-term market concerns and Old Wall downgrades. Specifically, people are concerned about the lack of inventory in the apparel space resulting in ‘empty shelves’ at TJX and the rest of the off-price channel come holiday. That’s a fair concern, as TJX thrives when the apparel business industrywide is choking on inventory – which is clearly not the case today. But we think that limits near-term upside to earnings, rather than a miss. In fact, we’re 5% above the Street for the back-half. But the setup into 2022 is where the story looks particularly interesting. The freight that is stuck on the water and won’t make it to shelves for department stores and wholesale brands will need to find a home when it lands in Jan/Feb. That’s when TJX will be buying up fall and winter inventory on the cheap and will pack-away for 2H22. On top of that, about 20% of sales are International, which reopens in large part next year. Then take into account that TJX is likely to end the quarter with close to $9bn in cash on its balance sheet – or about $8 per share. We expect the company to lean very heavily on the buyback. Add it all up, and we’re coming in at $3.80 next year vs the Street at $3.39. That’s a big delta for a steady-eddy name like TJX. That $3.80 turns into $5 over a TAIL duration – or about 13x EPS at $64. This name regularly trades 20-25x earnings, which is good for a stock over $100. Though we don’t see the same near-term earnings risk that the consensus does, we’ll hold back from making this a Best Idea until we’re closer to a material top-line acceleration, which is in early-mid 2022. But if you’ve got duration on your hands it’s tough to ignore TJX -- one of the highest quality secular share-gainers in retail -- at $64.
VVV | Going Long Again On Separation News. We think the upside on the split is underappreciated. We think there’s 20% minimum upside. Up to 40% more likely on bull case multiples.
