Critical Analysis: GAP (NYSE:GAP) & TJX Companies (NYSE:TJX)

TJX Companies (NYSE:TJX) and GAP (NYSE:GAP) are both retail/wholesale companies, but which is the superior investment? We will contrast the two businesses based on the strength of their analyst recommendations, valuation, profitability, dividends, institutional ownership, risk and earnings.

Analyst Ratings

This is a summary of current recommendations and price targets for TJX Companies and GAP, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
TJX Companies	0	3	13	0	2.81
GAP	0	3	0	0	2.00

TJX Companies presently has a consensus target price of $126.76, suggesting a potential upside of 8.68%. GAP has a consensus target price of $27.00, suggesting a potential upside of 28.11%. Given GAP’s higher probable upside, analysts clearly believe GAP is more favorable than TJX Companies.

Valuation and Earnings

This table compares TJX Companies and GAP”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
TJX Companies	$54.22 billion	2.43	$4.47 billion	$4.03	28.94
GAP	$15.17 billion	0.52	$502.00 million	($27.20)	-0.77

TJX Companies has higher revenue and earnings than GAP. GAP is trading at a lower price-to-earnings ratio than TJX Companies, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares TJX Companies and GAP’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
TJX Companies	8.56%	63.19%	15.45%
GAP	5.05%	28.89%	6.92%

Volatility & Risk

TJX Companies has a beta of 0.89, suggesting that its share price is 11% less volatile than the S&P 500. Comparatively, GAP has a beta of 2.35, suggesting that its share price is 135% more volatile than the S&P 500.

Dividends

TJX Companies pays an annual dividend of $1.50 per share and has a dividend yield of 1.3%. GAP pays an annual dividend of $0.60 per share and has a dividend yield of 2.8%. TJX Companies pays out 37.2% of its earnings in the form of a dividend. GAP pays out -2.2% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. GAP is clearly the better dividend stock, given its higher yield and lower payout ratio.

Institutional and Insider Ownership

91.1% of TJX Companies shares are held by institutional investors. 0.1% of TJX Companies shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.

Summary

TJX Companies beats GAP on 12 of the 16 factors compared between the two stocks.

About TJX Companies

The TJX Companies, Inc., together with its subsidiaries, operates as an off-price apparel and home fashions retailer in the United States, Canada, Europe, and Australia. It operates through four segments: Marmaxx, HomeGoods, TJX Canada, and TJX International. The company sells family apparel, including footwear and accessories; home fashions, such as home basics, furniture, rugs, lighting products, giftware, soft home products, decorative accessories, tabletop, and cookware, as well as expanded pet, and gourmet food departments; jewelry and accessories; and other merchandise. It offers its products through stores and e-commerce sites. The TJX Companies, Inc. was incorporated in 1962 and is headquartered in Framingham, Massachusetts.

About GAP

The Gap, Inc. operates as an apparel retail company. The company offers apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands. Its products include adult apparel and accessories; and fitness and lifestyle products for use in yoga, training, sports, travel, and everyday activities for women and girls. The company offers its products through company-operated stores, franchise stores, websites, and third-party arrangements. It has franchise agreements to operate Old Navy, Gap, Banana Republic, and Athleta stores and websites in Asia, Europe, Latin America, the Middle East, and Africa. The Gap, Inc. was incorporated in 1969 and is headquartered in San Francisco, California.