Trade TJX Companies Inc for Big Returns Ahead of Earnings

Wall Street has been skeptical of retail stocks this year. Most of the focus has been placed on the ongoing battle between, Inc. (NASDAQ:AMZN) and Walmart Inc (NYSE:WMT). But that doesn’t mean there haven’t been other winners in the sector. Take TJX Companies Inc (NYSE:TJX) for example.

I’ve been bullish on TJX for quite some time. The company offers a unique bargain hunting experience that many shoppers love, and that neither Amazon nor Walmart can truly duplicate. My wife loves the store, and it comes in second to Kohl’s Corporation (NYSE:KSS) in the Hargett household only due to store proximity.

After the first major market dip of 2018 in early February, I listed TJX stock as a brick-and-mortar bargain among retail stocks. Since then, TJX has rallied more than 13% to trade near fresh all-time highs.

TJX stock
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 After trading near $87 in late April, TJX stock staged an orderly retreat to support in the $81 region — home to its 50-day moving average. With earnings set to arrive on Tuesday next week, TJX stock bulls are moving back into the shares.

And earnings could add fuel to the fire. Currently, analysts are expecting a profit of $1.02 per share from TJX — up 24.4% year over year. Revenue is expected to rise 8.8% to $8.47 billion. puts the whisper number even higher at $1.04 per share.

In fact, sentiment is rather bullish on TJX stock heading into next week’s trip to the earnings confessional. According to Thomson/First Call, only 23 of the 27 analysts following TJX stock rate the shares a “buy” or better.

The 12-month consensus price target comes in at $91.95 — just 7.4% north of TJX’s current perch. While upgrades are unlikely, price target increases could be in the offing.

Meanwhile, TJX options activity has been thin heading into next week, with open interest totaling only about 4,800 contracts. I would expect this number to rise this week as earnings draw near.

What’s more, TJX options traders are rather noncommittal right now. The June put/call OI ratio comes in at 0.84, near the midpoint of the past year’s worth of readings. That said, June implied volatility is pricing in a potential post-earnings move of about 5.7% for TJX stock. That’s a pretty healthy move considering the lack of attention from options traders.

2 Trades for TJX Stock

Call Spread: Traders looking to bet on a post-earnings rally for TJX stock might want to consider a June $87.50/$90 bull call spread. At last check, this spread was offered at 80 cents, or $80 per pair of contracts.  Breakeven lies at $88.30, while a maximum profit of $1.70, or $170 per pair of contracts — a potential return of over 200% — is possible if TJX stock closes at or above $90 when June options expire.

Put Sell: On the other hand, this earnings season has seen quite a few stocks fall despite strong quarterly results — retails stocks like Home Depot, Inc. (NYSE:HD) come to mind. If you are not comfortable making a bullish bet on TJX stock, then a more neutral put sell options might fit the bill. The June $77.50 put sell has quite a bit of potential for staying out of the money.

At last check, this put was bid at 40 cents, or $40 per contract.  As always, the upside to this put sell strategy is that you keep the premium as long as TJX stock closes above $77.50 when June options expire.  The downside is that if TJX trades below $77.50 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $77.50 per share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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