Target Financial Analysis

Juan A. Torres Rodriguez D01596038 Mini Case Assignment rump pot. started in 1902 as Daytons ironic Goods company. At 1911, Daytons Dry Goods is renames as Dayton company, and commonly known as Daytons Department Store. In 1946 Daytons Department Stores started giving the community back 5% of their pretax profits, a practice that position Corp still maintains. During the 1960s Daytons create a new kind of store to appeal the canaille called scar, opening the first take store in the Twin Cities on May 1, 1962. The industry welkin in which Target Corpo proportionalityn competes is in the retail sector reaching the $62. 7 Billion in sales. As mentioned above, Target competes in the retail sector, which makes the operating risks of the company mainly foc utilize on guests perceptions, differentiation of brand, and anticipating consumer preferences to boost their sales, gross margin and profitability. If we take a look at Targets 10K, the first risk factor they mention is the ab ility of differentiate the business from other retailers by creating attractive value propositions through a careful combination of damage, merchandise assortment, convenience, guest service and merchandising 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 financial risk the company might have. One of the financial risks we have to address in any type of company is the debt to broad(a) capitalization ratio. Based on financial schooling of their 2011 report, we can calculate the debt to total capitalization ratio in the following manner Total debt 15,726 jillion Total stockholders equity 15,487 million, therefore 15,726 / 31,213= . 50 or 50%Comparing their debt to total capitalization ratio with industry average, Targets is too high. The industry debt to total capitalization ratio is 0. 36. Comparing the financial information of previous years Target went fr om 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 die to do. In regards of Target stock, currently they dont have any preferred stock outstanding, full common stock. Targets common stock is traded in the NYSE as TGT. The price of its common stock as of today is $62. 0, going up 0. 06 points. Targets cash dividend contain on the commonplace trite is 0. 0192 = 1. 92% = 2. 0 Cash dividends declared per share $1. 20 legitimate 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 section 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 deliberateness 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 beta is . 48. Now if we would like to calculate what would be Targets new beta without the long-term debt (unlevered beta) we need 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 measure Rate, according to the Income Statement found at Targets annual report, the rate is 34. 3%. In order to calculate Targets apostrophize 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 cost 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 damage of debt before any ta xes 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. victimization the new beta of . 48 we can determine what is the Expected Total return by Common 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% habituated 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 mensural 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 last things used to evaluate in order to consider investing in a company is its cost pay Multiple. Targets Price 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 graph was retrieved from Yahoo Financial. In here we can confabulate the performance of Targets Stock (TGT) during the one-time(prenominal) 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 episode 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-Term Debt. Comparing T argets debt to capital to the industry average, the industry average is 0. 36. However I would invest in Target. I find 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 demonstrate their market advantage over other retailers. What confident(p) me to invest into Target mostly was the P/E ratio.Comparing it to a corporation like Wal-Mart, which is really 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/companies/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