Running The Numbers - Target ($TGT) Looks Overvalued
Previously Valuecruncher has looked at Wal-Mart ($WMT) the discount retailer. Today we look at Target ($TGT) a competitor in the discount retailing space. $TGT is trading close to a 52-week low. So how does the current share price of $TGT look from an intrinsic value perspective?
Valuecruncher valuation model of $TGT with interactive assumptions
Valuecruncher produces a valuation of US$30.48 for $TGT. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 13.7% below the current share price of US$35.33.
Assumptions
- Revenue: Reuters aggregates 16 analysts covering $TGT and these analysts have mean estimates of 2009 and 2010 revenues of US$67.2 billion and US$72.4 billion respectively. For our analysis we have used US$67.15 billion in 2009, US$68.25 billion in 2010 and US$70.5 billion in 2011.
- Profitability: We have used an EBITDA margin of 10.0% in 2009 rising to 10.5% in 2010. Reuters has $TGT‘s EBITD margin at 10.7% last year and also averaging 10.7% over the last five-years.
- Capital Expenditure: We have assumed capital expenditures of US$4.25 billion in 2009 then US$4.0 billion in 2010 and 2011 then US$3.75 billion per annum moving forward.
- Discount Rate: 8.0%.
- Terminal Growth Rate: 3.5%.
Our valuation is sensitive to the discount rate assumption. If we drop the discount rate to 7.5% then the valuation rises to US$37.29 5.5% above the current share price of US$35.33.
Our analysis incorporates the cash and debt on the $TGT balance sheet – Valuecruncher calculates a net debt number.
Play with our assumptions – what does your analysis say?
Disclosure: None