TJX Companies (NYSE:

| Oct 14 | Jan 15 | Apr 15 | Jul 15 |

EPS Est | 0.85 | 0.90 | 0.67 | 0.76 |

EPS Actual | 0.85 | 0.93 | 0.69 | 0.80 |

Difference | 0.00 | 0.03 | 0.02 | 0.04 |

Surprise % | 0.00% | 3.30% | 3.00% | 5.30% |

(Source: Yahoo Finance)

Let's dig deeper into TJX's financials to find out why its shares do represent a compelling investment opportunity and a lot of the optimism might actually be warranted.

## Cash generation

With FCF standing at

It's important to assess how much capital a company is using to generate its earnings or, in other words, the value a company is creating for its shareholders. This can be done by measuring the difference between Return on Invested Capital and Working Asset Cost of Capital.

I have calculated TJX's WACC under the following assumptions:

- I have set the risk-free rate of return equal to the 10-Year Treasury Constant Maturity Rate of 2.26%.
- I have used TJX's five-year average tax rate.
- Market risk premium refers to the difference between expected return of the market and the risk-free rate of return. In my model, I have set the required market premium in the following range: 6%-7.5%.
- I have used Apparel industry Unlevered Beta to calculate levered beta of TJX.

Details of the model and calculations can be seen below:

...Inputs Summary | Low | High |

Levered Beta | 0.88 | 1.02 |

Market Risk Premium | 6.0% | 7.5% |

Risk-free Rate | 2.3% | 2.3% |

Cost of Long-term Debt | 4.0% | 5.0% |

Tax Rate | 37.0% | 37.0% |

Debt % of Capital | 5.0% | 10.0% |

Implied WACC Range* | 7.3% | 10.1% |

Selected WACC | 8.5% | |