Target Financial Analysis

Juan A. Torres Rodriguez D01596038 Mini Case Assignment point Corp. started in 1902 as Daytons Dry Goods company. At 1911, Daytons Dry Goods is renames as Dayton Company, and commonly known as Daytons incision Store. In 1946 Daytons Department Stores started giving the community back 5% of their pretax profits, a practice that mark Corp still maintains. During the 1960s Daytons create a immature kind of store to appeal the masses called bon ton, opening the first buns store in the Twin Cities on May 1, 1962. The industry sphere of influence in which stub Corporation competes is in the retail sector comer the $62. 7 Billion in sales. As rebooted above, Target competes in the retail sector, which makes the operating risks of the company mainly focused on customers perceptions, differentiation of brand, and anticipating consumer preferences to boost their sales, gross margin and profitability. If we take a heart at Targets 10K, the first risk factor they mention is the abil ity of differentiate the business from other retailers by creating attractive care for propositions through a careful combination of price, merchandise assortment, convenience, guest religious service and marketing efforts.Another risk that all companies in this sector face is the macroeconomic condition of the country and the impact this has in their consumers. This lead us to the pecuniary risk the company might cook. One of the pecuniary risks we have to cipher in any type of company is the debt to total capitalisation ratio. base on financial information of their 2011 report, we can work up the debt to total capitalization ratio in the following manner native debt 15,726 million Total gestateholders equity 15,487 million, therefore 15,726 / 31,213= . 50 or 50%Comparing their debt to total capitalization ratio with industry modal(a), Targets is too high. The industry debt to total capitalization ratio is 0. 36. Comparing the financial information of foregoing years Target went from 0. 58 in 2009 to 0. 52 in 2010, to 0. 50 in 2011. Overall, Target is improving significantly their debt to capitalization ratio, but still has some work to do. In regards of Target banal, presently they dont have any preferred stock corking, effective common stock. Targets common stock is traded in the big board as TGT. The price of its common stock as of like a shot is $62. 0, going up 0. 06 points. Targets cash dividend product on the familiar crease is 0. 0192 = 1. 92% = 2. 0 Cash dividends declared per portion out $1. 20 Current stock price $62. 50 Cash dividend yield= 1. 15 dividends declared/ 62. 50 stock price = 1. 92 = 2. 0 Targets market capitalization is 668. 4 million shares issued and outstanding x $62. 50 of stock prices = 41. 8 Billion Continuing with Targets capital structure, if we look at Targets liabilities voice Short portion of long-term Debt = $3. 3 Billion Long-term debt = $15. 2 Billion Therefore the total debt for Target would be . 3 B + 15. 2 B = 18. 5 Billion Dollars Taking the previous tally of Targets market capitalization of 41. 8 the total capitalization would be 18. 5 B + 41. 8 B = 60. 3 Billion, or 31% Debt 69% Equity As of November 18, 2012, Targets current important is . 48. outright if we would like to calculate what would be Targets new beta without the long debt (unlevered beta) we expect to use the Hamada formula for the unlevered beta bu= b/ 1 +(1-T)(D/S) bu= . 48 / 1 + (1-34. 3%) (18. 5/40. 6) bu= . 37 If Target would not have any long-term debt, its beta would be of . 7. Moving to Targets current Marginal Tax Rate, according to the Income Statement found at Targets annual report, the rate is 34. 3%. In order to calculate Targets equal of debt before and after taxes, we need to look for the bonds issued by a corporation. Since Target has not issued bonds, I took the make up of a long-term debt due in 2020 as my example. The rate of that long-term debt is 3. 875%. This would be the liv e of debt before any taxes taken. Now to calculate the Cost of Debt after tax, we need to proceed with the following calculation 3. 875 ( 1 34. %) = 2. 545875 As mentioned before, Target doesnt have any preferred stock. We can calculate the Cost of Equity using the Risk Free Rate of 3. 00% and a Risk Premium of 7. 5% points. Using the new beta of . 48 we can determine what is the Expected Total return by parking area Stockholders rRF = 3. 00 rRP = 7. 5 b= . 48 Cost of Equity = rRF + (rRP x b) =3. 00% + (7. 5% pts x 0. 48) = 0. 066 ? 6. 6% Given the dividend yield of 2. 0 we can also determine the Expected annual appreciation of Targets Common Stock 6. 6% Total Return 2. 0 Dividend Yield = 4. % of E. A. A. With the previous information calculated we could proceed and calculate the Weighted Average Cost of Capital wd = 31% ws = 69% rs = 6. 6% rd = 3. 875% Tax = 34. 3 WACC = wd ( 1 T)rd + ws(rs) =31% ( 1 34. 3%) 3. 875% + (69% x 6. 6%) = 0. 053432 = 5. 3432% One of the choke thi ngs used to evaluate in order to consider investing in a company is its impairment Earnings Multiple. Targets cost Earnings Multiple is calculated the following way Stock Price= $62. 50 Earnings Per Share = $4. 50 P/E = Stock Price / EPS = 62. 50 / 4. 50 = 13. 89If we compare Targets P/E ratio with Wal-Mart, which is in the same industry, (14. 03 P/E), Targets P/E is within ndustry. http//finance. yahoo. com/q/bc? s=TGT+Basic+ chart&t=5y This chart was retrieved from Yahoo Financial. In here we can keep in line the performance of Targets Stock (TGT) during the past five years. In 2008 Targets started at approximately $55. 00 looking at 2009, the stock plummeted from the 60s to the mid 20s, which reflects the market crash. After this succession in the economy we can see that Targets stock has recovered significantly.After performing the calculations, Targets capital structure is optimal. However, the debt to capitalization ratio is high, at 50%. Target needs to lower its Long-Ter m Debt. Comparing Targets debt to capital to the industry average, the industry average is 0. 36. However I would invest in Target. I think I would have an advantage over outsiders, because I used to work at Target Corporation. Target is a company that is constantly growing, and their sales endorse their market advantage over other retailers. What convinced me to invest into Target mostly was the P/E ratio.Comparing it to a corporation like Wal-Mart, which is genuinely successful, Targets P/E ratio is acceptable and attractive. References 1. Scovaner, Douglas A. (2011). Target 2011 Annual Report. Retrieved on November 18, 2012 https//corporate. target. com/annual-reports/2011/images/company/annual_report_2011/documents/Target_2011_Annual_Report. pdf 2. Stock Analysis on net. (2012). Retrieved on November 18, 2012. http//www. stock-analysis-on. net/NYSE/Company/Target-Corp/Ratios/Long-term-Debt-and-SolvencyDebt-to-Capital 3. Retrieved on November 18, 2012 http//ycharts. com/compani es/TGT/pe_ratio 4.Yahoo Finance. (2012). Retrieved on November 18, 2012. http//finance. yahoo. com/q/bc? s=TGT+Basic+Chart&t=5y 1 . https//corporate. target. com/annual-reports/2011/images/company/annual_report_2011/documents/Target_2011_Annual_Report. pdf, page 5. 2 . http//www. stock-analysis-on. net/NYSE/Company/Target-Corp/Ratios/Long-term-Debt-and-SolvencyDebt-to-Capital 3 . https//corporate. target. com/annual-reports/2011/images/company/annual_report_2011/documents/Target_2011_Annual_Report. pdf, 4 . http//ycharts. com/companies/TGT/pe_ratio