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    TGT · NYQ · Consumer Defensive

    Target Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 61.90

    Market price

    USD 158.19

    Implied upside

    -60.9%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 4.0% of revenue against depreciation of 2.7%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 61.90-60.9%
    Exit multiple
    USD 106.26-32.8%
    Market price
    USD 158.19

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn3bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 103.4bnUSD 102.0bnUSD 100.6bnUSD 99.3bnUSD 97.9bn-1.3%
    EBITUSD 4.9bnUSD 4.8bnUSD 4.8bnUSD 4.7bnUSD 4.6bn-1.3%
    NOPATUSD 3.9bnUSD 3.8bnUSD 3.8bnUSD 3.7bnUSD 3.7bn-1.3%
    Add depreciation & amortisationUSD 2.8bnUSD 2.8bnUSD 2.7bnUSD 2.7bnUSD 2.7bn-1.3%
    Less capital expenditureUSD -4.1bnUSD -4.0bnUSD -4.0bnUSD -3.9bnUSD -3.9bn-1.3%
    Less increase in working capitalUSD 241.3mUSD 238.1mUSD 234.9mUSD 231.7mUSD 228.6m+1.3%
    Free cashflow to firmUSD 2.8bnUSD 2.8bnUSD 2.8bnUSD 2.7bnUSD 2.7bn-1.3%
    Discount factor0.95780.87850.80590.73920.6781-
    Present valueUSD 2.7bnUSD 2.5bnUSD 2.2bnUSD 2.0bnUSD 1.8bn-9.5%
    Present Value Of The ForecastUSD 11.2bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.991Reported 0.986, pulled toward 1.0 (Blume)
    Cost of equity10.45%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 71.9bn78.0% of capital
    Total debtUSD 20.3bn22.0% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC9.02%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 61.90

    74% of EV

    Forecast FCFF, final year
    USD 2.7bn
    Capex at depreciation, working capital in reinvestment
    USD 3.7bn
    Less reinvestment at g/ROIC (18.7% of NOPAT)
    USD -684.7m
    Capitalised
    USD 3.0bn
    ROIC (reported)
    13.4%
    Terminal value, undiscounted
    USD 46.9bn
    Terminal value, discounted
    USD 31.8bn
    Enterprise value
    USD 43.0bn
    Less net debt
    USD 14.8bn
    Equity value
    USD 28.2bn

    Exit at 10.5x EBITDA

    Value per shareUSD 106.26

    82% of EV

    Terminal value, undiscounted
    USD 76.7bn
    Terminal value, discounted
    USD 52.0bn
    Enterprise value
    USD 63.2bn
    Less net debt
    USD 14.8bn
    Equity value
    USD 48.4bn

    Spread between methods: 53%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    7.02%90.0795.75102.63111.17122.08
    8.02%71.3074.6578.5783.2388.88
    9.02%57.5459.5861.9164.5867.71
    10.02%47.0248.2849.6851.2553.03
    11.02%38.7339.5040.3341.2442.24

    Outlined: this model. Green text: above today's price of 158.19. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year-1.3%21.8%+23.2pp
    EBIT margin4.7%9.1%+4.4pp
    Discount rate9.0%5.7%-3.3pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.