Target Corp (TGT, Financial) has seen a daily gain of 3.94%, but a 3-month loss of 15.9%. Its Earnings Per Share (EPS) stands at 5.87. These figures lead us to the question: Is Target (TGT) significantly undervalued? This article provides a comprehensive valuation analysis of Target, shedding light on its intrinsic value. Keep reading to uncover valuable insights about this retail giant.
Introduction to Target Corp (TGT, Financial)
Target, as the nation's sixth-largest retailer, has a strategy rooted in delivering a gratifying in-store shopping experience and a wide product assortment at competitive prices. The brand's upscale and stylish image began to carry national merit in the 1990s, and it has since cemented itself as a top American retailer. Today, Target operates over 1,900 stores in the United States, generating over $100 billion in sales and fulfilling over 2 billion customer orders annually. With a stock price of $129.98, Target has a market cap of $60 billion. Its GF Value, an estimation of fair value, stands at $231.61.
Understanding the GF Value of Target Corp (TGT, Financial)
The GF Value is a unique calculation of a stock's intrinsic value. The GF Value Line on our summary page offers an overview of the fair value at which the stock should ideally be traded. This value is calculated based on historical multiples, GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
At its current price of $129.98 per share, Target (TGT, Financial) appears to be significantly undervalued. Given this undervaluation, the long-term return of Target's stock is likely to be much higher than its business growth.
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Financial Strength of Target Corp (TGT, Financial)
Companies with poor financial strength pose a high risk of permanent capital loss for investors. Both the cash-to-debt ratio and interest coverage of a company are great ways to understand its financial strength. Target has a cash-to-debt ratio of 0.07, ranking worse than 84.82% of companies in the Retail - Defensive industry. The overall financial strength of Target is 5 out of 10, indicating fair financial strength.
Profitability and Growth of Target Corp (TGT, Financial)
Consistent profitability over the long term offers less risk for investors. Target has been profitable 9 years over the past 10. Over the past twelve months, the company had a revenue of $109.30 billion and Earnings Per Share (EPS) of $5.87. Its operating margin is 3.51%, which ranks better than 55.67% of companies in the Retail - Defensive industry. Overall, the profitability of Target is ranked 8 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. The 3-year average annual revenue growth of Target is 15.7%, ranking better than 83.86% of companies in the Retail - Defensive industry. However, the 3-year average EBITDA growth rate is 0.2%, ranking worse than 74.6% of companies in the same industry. This growth ranking indicates room for improvement.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If ROIC exceeds WACC, the company is likely creating value for its shareholders. Over the past 12 months, Target's ROIC was 8.46, while its WACC came in at 8.99.
Conclusion
In summary, Target (TGT, Financial) appears to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks lower than 74.6% of companies in the Retail - Defensive industry. To learn more about Target's stock, check out its 30-Year Financials here.
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