Target Corp (TGT, Financial) recently experienced a daily gain of 2.16%, despite a 3-month loss of -10.4%. The company's Earnings Per Share (EPS) stands at 7.28. These figures prompt the question: is the stock significantly undervalued? This article aims to provide an in-depth valuation analysis of Target (TGT), offering valuable insights for potential investors.
Introduction to Target Corp (TGT, Financial)
As the nation's sixth-largest retailer, Target's strategy is focused on providing a satisfying in-store shopping experience and a wide product assortment at competitive prices. The company's upscale and stylish image has seen its top line grow threefold to nearly $30 billion since the 1990s. Today, Target operates over 1,900 stores in the United States, generates over $100 billion in sales, and fulfills over 2 billion customer orders annually.
Understanding the GF Value of Target (TGT, Financial)
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, the stock may be overvalued, and its future return could be poor. However, if the stock price is significantly below the GF Value Line, the stock may be undervalued, and its future return could be higher.
Based on GuruFocus' valuation method, Target (TGT, Financial) appears to be significantly undervalued. The long-term return of its stock is likely to be much higher than its business growth due to this significant undervaluation.
Assessing Target's Financial Strength
Companies with poor financial strength present investors with a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Target has a cash-to-debt ratio of 0.09, ranking worse than 80% of 305 companies in the Retail - Defensive industry. Overall, Target's financial strength is fair, at 6 out of 10.
Profitability and Growth of Target
Investing in profitable companies carries less risk, especially those demonstrating consistent profitability over the long term. Target has been profitable 9 years over the past 10 years, with revenues of $108 billion and Earnings Per Share (EPS) of $7.28 in the past 12 months. Its operating margin of 4.36% is better than 64.26% of 305 companies in the Retail - Defensive industry. Overall, GuruFocus ranks Target's profitability as strong.
Growth is a crucial factor in a company's valuation. The faster a company is growing, the more likely it is to be creating value for shareholders. Target's 3-year average annual revenue growth rate is 15.7%, ranking better than 83.68% of 288 companies in the Retail - Defensive industry. However, its 3-year average EBITDA growth rate is 0.2%, ranking worse than 75.2% of 254 companies in the same industry.
Target's 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 8.92.
Conclusion
In conclusion, Target (TGT, Financial) appears to be significantly undervalued. The company's financial condition is fair, its profitability is strong, but its growth ranks worse than 75.2% of 254 companies in the Retail - Defensive industry. For more information about Target's stock, you can check out its 30-Year Financials here.
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