Target Corp Annual Valuation – 2014 $TGT

200px-Target_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Enterprising Investor.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Target Corp (TGT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Target Corporation sells a range of assortment of general merchandise and food in its stores. The Company’s general merchandise and CityTarget stores offer a food assortment on a smaller scale and its SuperTarget stores offer a line of food items comparable to traditional supermarkets. The Company operates in three segments: U.S. Retail, U.S. Credit Card and Canadian. The Company’s U.S. Retail Segment includes all of its United States merchandising operations. The Company’s U.S. Credit Card Segment offers credit to qualified guests through its credit cards: the Target Credit Card and the Target Visa. Its Canadian Segment includes costs incurred in the United States and Canada related to its Canadian retail market entry. As of February 2, 2013, the Company had 1,778 stores in 49 states and the District of Columbia. It also owns three distribution centers in Canada, with a total of 3,963 thousand square feet.

TGT Chart

TGT data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 - PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $58.38
MG Value $42.24
MG Opinion Overvalued
Value Based on 3% Growth $54.52
Value Based on 0% Growth $31.96
Market Implied Growth Rate 3.51%
Net Current Asset Value (NCAV) -$26.09
PEmg 15.53
Current Ratio 0.92
PB Ratio 2.24

Balance Sheet – 5/3/2014

Current Assets $11,023,000,000
Current Liabilities $12,040,000,000
Total Debt $12,612,000,000
Total Assets $44,042,000,000
Intangible Assets $0
Total Liabilities $27,556,000,000
Outstanding Shares 633,610,000

Earnings Per Share

2015 (estimate) $3.60
2014 $3.07
2013 $4.52
2012 $4.28
2011 $4.00
2010 $3.30
2009 $2.86
2008 $3.35
2007 $3.21
2006 $2.71
2005 $2.07

Earnings Per Share – ModernGraham

2015 (estimate) $3.76
2014 $3.84
2013 $4.08
2012 $3.76
2011 $3.45
2010 $3.14

Dividend History
TGT Dividend Chart

TGT Dividend data by YCharts


Target Corp is not suitable for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the company has a current ratio too low and has not shown sufficient earnings growth over the last ten years.  The Enterprising Investor has concerns with the level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $3.45 in 2011 to only an estimated $3.76 for 2015.  This low level of demonstrated growth does not support the market’s implied estimate of 3.51% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value that is well below the market price.

Be sure to review the previous ModernGraham Valuations of Target Corp (TGT)!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Target Corp (TGT)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Target Corp (TGT) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from wikipedia; this article is not affiliated with the company in any manner.






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