Stock Analysis on Net
Stock Analysis on Net

TJX Cos. Inc. (NYSE:TJX)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

TJX Cos. Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 12.34%
01 FCFF0 4,397
1 FCFF1 5,517 = 4,397 × (1 + 25.47%) 4,911
2 FCFF2 6,693 = 5,517 × (1 + 21.32%) 5,303
3 FCFF3 7,843 = 6,693 × (1 + 17.17%) 5,531
4 FCFF4 8,863 = 7,843 × (1 + 13.01%) 5,564
5 FCFF5 9,649 = 8,863 × (1 + 8.86%) 5,392
5 Terminal value (TV5) 301,659 = 9,649 × (1 + 8.86%) ÷ (12.34% – 8.86%) 168,568
Intrinsic value of TJX Cos. Inc. capital 195,269
Less: Long-term debt, inclusive of current maturities (fair value) 2,630
Intrinsic value of TJX Cos. Inc. common stock 192,639
 
Intrinsic value of TJX Cos. Inc. common stock (per share) $170.80
Current share price $119.56

Based on: 10-K (reporting date: 2024-02-03).

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Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

TJX Cos. Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 134,848 0.98 12.55%
Long-term debt, inclusive of current maturities (fair value) 2,630 0.02 1.92% = 2.56% × (1 – 25.16%)

Based on: 10-K (reporting date: 2024-02-03).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,127,872,845 × $119.56
= $134,848,477,348.20

   Long-term debt, inclusive of current maturities (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (25.00% + 24.50% + 25.40% + 21.00% + 25.70% + 25.20%) ÷ 6
= 25.16%

WACC = 12.34%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

TJX Cos. Inc., PRAT model

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Average Feb 3, 2024 Jan 28, 2023 Jan 29, 2022 Jan 30, 2021 Feb 1, 2020 Feb 2, 2019
Selected Financial Data (US$ in millions)
Interest expense, excluding capitalized interest 79 84 120 194 59 65
Net income 4,474 3,498 3,283 90 3,272 3,060
 
Effective income tax rate (EITR)1 25.00% 24.50% 25.40% 21.00% 25.70% 25.20%
 
Interest expense, excluding capitalized interest, after tax2 59 63 89 153 44 48
Add: Cash dividends declared on common stock 1,522 1,373 1,248 312 1,112 966
Interest expense (after tax) and dividends 1,581 1,436 1,337 465 1,156 1,014
 
EBIT(1 – EITR)3 4,533 3,561 3,372 243 3,316 3,108
 
Current portion of long-term debt — 500 — 750 — —
Long-term debt, excluding current portion 2,862 2,859 3,355 5,333 2,237 2,234
Shareholders’ equity 7,302 6,364 6,003 5,833 5,948 5,049
Total capital 10,164 9,723 9,358 11,915 8,185 7,282
Financial Ratios
Retention rate (RR)4 0.65 0.60 0.60 -0.91 0.65 0.67
Return on invested capital (ROIC)5 44.60% 36.63% 36.03% 2.04% 40.52% 42.68%
Averages
RR 0.64
ROIC 40.09%
 
FCFF growth rate (g)6 25.47%

Based on: 10-K (reporting date: 2024-02-03), 10-K (reporting date: 2023-01-28), 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02).

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2024 Calculations

2 Interest expense, excluding capitalized interest, after tax = Interest expense, excluding capitalized interest × (1 – EITR)
= 79 × (1 – 25.00%)
= 59

3 EBIT(1 – EITR) = Net income + Interest expense, excluding capitalized interest, after tax
= 4,474 + 59
= 4,533

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [4,533 – 1,581] ÷ 4,533
= 0.65

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 4,533 ÷ 10,164
= 44.60%

6 g = RR × ROIC
= 0.64 × 40.09%
= 25.47%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (137,478 × 12.34% – 4,397) ÷ (137,478 + 4,397)
= 8.86%

where:

Total capital, fair value0 = current fair value of TJX Cos. Inc. debt and equity (US$ in millions)
FCFF0 = the last year TJX Cos. Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of TJX Cos. Inc. capital

FCFF growth rate (g) forecast

TJX Cos. Inc., H-model

Microsoft Excel
Year Value gt
1 g1 25.47%
2 g2 21.32%
3 g3 17.17%
4 g4 13.01%
5 and thereafter g5 8.86%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 25.47% + (8.86% – 25.47%) × (2 – 1) ÷ (5 – 1)
= 21.32%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 25.47% + (8.86% – 25.47%) × (3 – 1) ÷ (5 – 1)
= 17.17%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 25.47% + (8.86% – 25.47%) × (4 – 1) ÷ (5 – 1)
= 13.01%