On-line retailer Amazon.com ($AMZN) closed yesterday at an all time high of US$135.91. $AMZN is up 218% in the last 12 months – better than Apple ($AAPL) at 122%, Google ($GOOG) at 88% or the broad NASDAQ at 41% [visual]. Time to have a look at a superstar performance.

Valuecruncher Interactive Analysts Report For Amazon ($AMZN)

We have the comparator group set as Wal-Mart ($WMT), Google ($GOOG), eBay ($EBAY) and Yahoo ($YHOO). You can change these peer companies on the site. For example you could add:

1. Overstocked.com ($OSTK) – Interactive Analyst Report For $OSTK
2. Barnes & Noble ($BKS) – Interactive Analyst Report For $BKS
3. Netflix ($NFLX) – Interactive Analyst Report For $NFLX

So what do we think?

Discounted Cash Flow Valuation

We have completed a discounted cash flow valuation using our interactive tools (there is a “discounted cash flow analysis” link just under the company name on the company page). We have populated our model with a mixture of consensus analyst estimates and Valuecruncher estimates. Our analysis produces a valuation of US$99.04 for $AMZN – 27.1% below the current share price. Using a DCF calculation we see $AMZN overvalued. But how about $AMZN compared to a peer group?

Comparison Analysis

I kept the first three peer group companies as $WMT, $GOOG, $EBAY and changed $YHOO to $BKS.  I am going to look at two of the metrics we use at Valuecruncher – Enterprise Value (EV)/Revenue and EV/EBITDA. Enterprise Value (EV) is simply market capitalization plus net debt [long-term borrowings less cash]. We use EV to capture the impact of debt and cash on a company’s balance sheet – market capitalization doesn’t capture different capital structures when comparing companies.

EV/Revenue shows how a dollar or revenues is being valued by the market against the comparator set. On an EV/Revenue basis $AMZN is trading at 2.8x ($AMZN is being valued at 2.8x last year’s revenues). This compares to $WMT at 0.6x, $GOOG at 7.8x, $EBAY at 3.4x and $BKS at 0.2x. $AMZN’s profit margins (at the EBITDA line) were 6.2% of revenues last year.  A dollar of $AMZN revenues is being valued more than 4.5 times a dollar of $WMT revenues – despite that dollar of revenues producing less profit (on an EBITDA basis) than the $WMT revenues.  A dollar of $AMZN revenues is being valued just less (15%) than a dollar of $EBAY revenues – but $EBAY produces over five times the profit (on an EBITDA basis) on each dollar of revenues as $AMZN does ($AMZN EBITDA margin 6.2% vs 33.3% for $EBAY).  Wow – based on previous performance $AMZN is trading a a massive premium.

Now $AMZN does have a range of additional services like their AWS offering that big future growth are expected from. But that is some significant future growth that is being valued in.

EV/EBITDA shows how a dollar of profit (measured in as Earnings Before Interest Taxes Depreciation and Amortization) is being valued by the market against the comparator set. On an EV/EBITDA basis $AMZN is trading at 47.0x ($AMZN is being valued at47.0x last year’s profit at the EBITDA line). A dollar of $AMZN EBITDA is worth more than double a dollar of $GOOG EBITDA ($GOOG has EBITDA margins of 37.3% vs $AMZN’s 6.2%).  $GOOG makes over 6 times the profit on each dollar of revenue that $AMZN does – but each dollar $AMZN’s profits are worth over double the comparable $GOOG profits.

This appears crazy.

Summary

Based on our DCF valuation – $AMZN looks significantly overvalued. Looking at some comparators – the market is valuing $AMZN very highly compared to some peers. We believe if you are investing in $AMZN at the current price – you are paying a full price which includes significant future growth.  We like $AMZN as a company – but not at these valuation levels.

Disclosure: no positions.

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.