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

With all of the losses this week in the markets we change tack to look at a company that isn’t trading near a 52-week low but closer to their 52-week high. Valuecruncher has previously completed a valuation of $WMT. With $WMT trading around US$60.00 we thought it was time to update our valuation.

Valuecruncher valuation model of $WMT with interactive assumptions

Valuecruncher produces a valuation of US$54.88 for $WMT. This is a current valuation not a target price. This valuation is 6.75% below the current share price of US$58.85.

Assumptions

Our assumptions are revenues of US$408.0 billion in 2008 growing to US$470.0 billion in 2010. We have used a flat EBITDA margin of 7.5% to 2010. Our terminal growth rate is 3.5%. We used a terminal capital expenditure number of US$14.5 billion. Our WACC (discount rate) is 8.0%. All of these assumptions can be amended in the Valuecruncher on-line valuation model to adjust the valuation. Our analysis incorporates the cash and debt on the $WMT balance sheet – Valuecruncher calculates a net debt number.

Our valuation is sensitive to the discount rate assumption. If we drop the discount rate to 7.5% then the valuation rises to US$62.84 6.78% above the current share price of US$58.85.

Based on our analysis and assumptions the current share price looks slightly expensive. Play with our assumptions – what does your analysis say?

Disclosure: None

Valuecruncher has a database of over 1,000 companies on major international exchanges. You can explore, create and share valuations for any of these companies.

Last week Wal-Mart announced solid June sales numbers. WMT is trading toward the top of the stock’s 52-week range. We decided to have a look at some projected financial numbers using our on-line valuation tool.

WMT Valuation

Wal-Mart grew revenues from US$284.3 billion in 2005 to US$378.8 billion in 2008 – a 10% compound annual growth rate. Our assumptions of revenues for the next three years are US$405.0 billion in 2009 growing to US$465.0 billion in 2011 – a 7% compound annual growth rate. We have projected EBITDA margins to be flat at 7.5%. We have used a terminal growth rate of 3.5%. We calculated this terminal growth rate based on year three growth of 6.9% dropping to a 3% stable growth rate by year 10. We used a terminal capital expenditure number of US$14.5 billion. We have used a WACC (discount rate) of 8%.

Valuecruncher Valuation WMT

Our analysis incorporates the cash and debt on the Wal-Mart balance sheet – Valuecruncher calculates a net debt number.

Our analysis gives a valuation of US$51.71 which is 8.0% below the current share price of US$56.29.

Based on our analysis the current valuation looks slightly overvalued. Play with our assumptions – what does your analysis say?

Valuecruncher has a database of over 1,000 companies on major international exchanges. You can explore, create and share valuations for any of these companies.