Target Corp (TGT, Financial) recorded a daily loss of 2.61% and a 3-month loss of 15.37%. Despite these losses, the company's Earnings Per Share (EPS) (EPS) stands at 7.28. This article aims to answer the question: Is Target significantly undervalued? Read on to discover our valuation analysis and gain a deeper understanding of Target's financial standing.
A Snapshot of Target Corp (TGT, Financial)
As the nation's sixth-largest retailer, Target's strategy revolves around delivering a gratifying in-store shopping experience and a wide product assortment at competitive prices. 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 share price of $127.79, Target has a market cap of $59 billion. However, based on our GF Value, the estimated fair value stands at $228.52, suggesting that Target's stock may be significantly undervalued.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock, derived from our exclusive method. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally trade. This value is calculated based on historical multiples that the stock has traded at, an internal adjustment factor based on the company's past returns and growth, and future estimates of business performance.
Target's current stock price of $127.79 per share significantly trails its GF Value, suggesting that the stock is undervalued. If the stock's share price is significantly below the GF Value Line, the stock may be undervalued, and its future returns could be high. This suggests that the long-term return of Target's stock is likely to be much higher than its business growth.
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Target's Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Thus, it is crucial to carefully review a company's financial strength before deciding to buy its stock. Target has a cash-to-debt ratio of 0.09, which is worse than 80.6% of 299 companies in the Retail - Defensive industry. GuruFocus ranks Target's overall financial strength at 6 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Target has been profitable 9 out of the past 10 years. Over the past twelve months, the company had a revenue of $108 billion and an EPS of $7.28. Its operating margin is 4.36%, which ranks better than 64.36% of 303 companies in the Retail - Defensive industry. Overall, Target's profitability is ranked 8 out of 10, indicating strong profitability.
Growth is a critical factor in a company's valuation. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. Target's 3-year average annual revenue growth rate is 15.7%, which ranks better than 83.97% of 287 companies in the Retail - Defensive industry. However, its 3-year average EBITDA growth rate is 0.2%, which ranks worse than 74.41% of 254 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to 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 the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Target's ROIC was 10.05, while its WACC came in at 9.06.
Conclusion
In conclusion, Target's stock shows every sign of being significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks worse than 74.41% of 254 companies in the Retail - Defensive industry. To learn more about Target stock, check out its 30-Year Financials here.
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