# TJX Cos. Inc. (TJX)

## Dividend Discount Model (DDM)

Intermediate level

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.

### Intrinsic Stock Value (Valuation Summary)

TJX Cos. Inc., dividends per share (DPS) forecast

US\$

Year Value DPSt or Terminal value (TVt) Calculation Present value at 9.15%
0 DPS01 0.74
1 DPS1 1.03 = 0.74 × (1 + 39.06%) 0.94
2 DPS2 1.35 = 1.03 × (1 + 31.26%) 1.14
3 DPS3 1.67 = 1.35 × (1 + 23.47%) 1.28
4 DPS4 1.93 = 1.67 × (1 + 15.67%) 1.36
5 DPS5 2.08 = 1.93 × (1 + 7.87%) 1.35
5 Terminal value (TV5) 176.27 = 2.08 × (1 + 7.87%) ÷ (9.15%7.87%) 113.78
Intrinsic value of TJX Cos. Inc.’s common stock (per share) \$119.85
Current share price \$62.68

Based on: 10-K (filing date: 2019-04-03).

1 DPS0 = Sum of the last year dividends per share of TJX Cos. Inc.’s common stock. See details »

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.

### Required Rate of Return (r)

 Assumptions Rate of return on LT Treasury Composite1 RF 2.23% Expected rate of return on market portfolio2 E(RM) 11.40% Systematic risk of TJX Cos. Inc.’s common stock βTJX 0.75 Required rate of return on TJX Cos. Inc.’s common stock3 rTJX 9.15%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

3 rTJX = RF + βTJX [E(RM) – RF]
= 2.23% + 0.75 [11.40%2.23%]
= 9.15%

### Dividend Growth Rate (g)

#### Dividend growth rate (g) implied by PRAT model

TJX Cos. Inc., PRAT model

Average Feb 2, 2019 Feb 3, 2018 Jan 28, 2017 Jan 30, 2016 Jan 31, 2015 Feb 1, 2014
Selected Financial Data (US\$ in thousands)
Cash dividends declared on common stock 965,539  793,878  680,183  564,586  483,280  413,134
Net income 3,059,798  2,607,948  2,298,234  2,277,658  2,215,128  2,137,396
Net sales 38,972,934  35,864,664  33,183,744  30,944,938  29,078,407  27,422,696
Total assets 14,326,029  14,058,015  12,883,808  11,499,482  11,128,381  10,201,022
Shareholders’ equity 5,048,606  5,148,309  4,510,599  4,307,075  4,264,230  4,229,893
Financial Ratios
Retention rate1 0.68 0.70 0.70 0.75 0.78 0.81
Profit margin2 7.85% 7.27% 6.93% 7.36% 7.62% 7.79%
Asset turnover3 2.72 2.55 2.58 2.69 2.61 2.69
Financial leverage4 2.84 2.73 2.86 2.67 2.61 2.41
Averages
Retention rate 0.74
Profit margin 7.47%
Asset turnover 2.64
Financial leverage 2.69

Dividend growth rate (g)5 39.06%

Based on: 10-K (filing date: 2019-04-03), 10-K (filing date: 2018-04-04), 10-K (filing date: 2017-03-28), 10-K (filing date: 2016-03-29), 10-K (filing date: 2015-03-31), 10-K (filing date: 2014-04-01).

2019 Calculations

1 Retention rate = (Net income – Cash dividends declared on common stock) ÷ Net income
= (3,059,798965,539) ÷ 3,059,798 = 0.68

2 Profit margin = 100 × Net income ÷ Net sales
= 100 × 3,059,798 ÷ 38,972,934 = 7.85%

3 Asset turnover = Net sales ÷ Total assets
= 38,972,934 ÷ 14,326,029 = 2.72

4 Financial leverage = Total assets ÷ Shareholders’ equity
= 14,326,029 ÷ 5,048,606 = 2.84

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.74 × 7.47% × 2.64 × 2.69 = 39.06%

#### Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × (\$62.68 × 9.15% – \$0.74) ÷ (\$62.68 + \$0.74) = 7.87%

where:
P0 = current price of share of TJX Cos. Inc.’s common stock
D0 = the last year dividends per share of TJX Cos. Inc.’s common stock
r = required rate of return on TJX Cos. Inc.’s common stock

#### Dividend growth rate (g) forecast

TJX Cos. Inc., H-model

Year Value gt
1 g1 39.06%
2 g2 31.26%
3 g3 23.47%
4 g4 15.67%
5 and thereafter g5 7.87%

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

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 39.06% + (7.87%39.06%) × (2 – 1) ÷ (5 – 1) = 31.26%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 39.06% + (7.87%39.06%) × (3 – 1) ÷ (5 – 1) = 23.47%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 39.06% + (7.87%39.06%) × (4 – 1) ÷ (5 – 1) = 15.67%