Target Corporation's (NYSE:TGT) Intrinsic Value Is Potentially 43% Above Its Share Price
Target Corporation's (NYSE:TGT) Intrinsic Value Is Potentially 43% Above Its Share Price
Key Insights
- The projected fair value for Target is US$246 based on 2 Stage Free Cash Flow to Equity
- Target is estimated to be 30% undervalued based on current share price of US$173
- Our fair value estimate is 35% higher than Target's analyst price target of US$183
Today we will run through one way of estimating the intrinsic value of Target Corporation (NYSE:TGT) by taking the forecast future cash flows of the company and discounting them back to today's value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. Don't get put off by the jargon, the math behind it is actually quite straightforward.
We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.
Step By Step Through The Calculation
We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate:
10-year free cash flow (FCF) estimate
2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | |
Levered FCF ($, Millions) | US$2.48b | US$3.74b | US$3.83b | US$4.20b | US$4.37b | US$4.66b | US$4.87b | US$5.07b | US$5.24b | US$5.40b |
Growth Rate Estimate Source | Analyst x5 | Analyst x8 | Analyst x7 | Analyst x4 | Analyst x2 | Analyst x1 | Est @ 4.68% | Est @ 3.96% | Est @ 3.46% | Est @ 3.11% |
Present Value ($, Millions) Discounted @ 6.0% | US$2.3k | US$3.3k | US$3.2k | US$3.3k | US$3.3k | US$3.3k | US$3.2k | US$3.2k | US$3.1k | US$3.0k |
("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$31b
We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.3%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 6.0%.
Terminal Value (TV)= FCF2033 × (1 + g) ÷ (r – g) = US$5.4b× (1 + 2.3%) ÷ (6.0%– 2.3%) = US$148b
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$148b÷ ( 1 + 6.0%)10= US$82b
The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$114b. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of US$173, the company appears a touch undervalued at a 30% discount to where the stock price trades currently. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out.
The Assumptions
The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Target as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 6.0%, which is based on a levered beta of 0.812. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.
SWOT Analysis for Target
- Earnings growth over the past year exceeded the industry.
- Debt is well covered by earnings and cashflows.
- Dividends are covered by earnings and cash flows.
- Dividend information for TGT.
- Dividend is low compared to the top 25% of dividend payers in the Consumer Retailing market.
- Annual earnings are forecast to grow for the next 3 years.
- Good value based on P/E ratio and estimated fair value.
- Annual earnings are forecast to grow slower than the American market.
- What else are analysts forecasting for TGT?
Looking Ahead:
Although the valuation of a company is important, it ideally won't be the sole piece of analysis you scrutinize for a company. The DCF model is not a perfect stock valuation tool. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. Can we work out why the company is trading at a discount to intrinsic value? For Target, we've put together three fundamental factors you should assess:
- Risks: For instance, we've identified 2 warning signs for Target that you should be aware of.
- Future Earnings: How does TGT's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
- Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!
PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the NYSE every day. If you want to find the calculation for other stocks just search here.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
關鍵見解
- 根據兩階段股權自由現金流,塔吉特的預計公允價值爲246美元
- 根據目前173美元的股價,目標估計被低估了30%
- 我們的公允價值估計比塔吉特的分析師目標股價183美元高35%
今天,我們將介紹一種估算塔吉特公司(紐約證券交易所代碼:TGT)內在價值的方法,即預測公司的未來現金流並將其折扣回今天的價值。實現這一目標的一種方法是使用折扣現金流(DCF)模型。不要被行話嚇跑,它背後的數學其實很簡單。
我們要提醒的是,對公司進行估值的方法有很多,就像DCF一樣,每種技術在某些情況下都有優點和缺點。對於那些熱衷於股票分析的人來說,你可能會對這裏的Simply Wall St分析模型感興趣。
逐步進行計算
我們使用的是兩階段增長模型,這只是意味着我們考慮了公司增長的兩個階段。在初始階段,公司的增長率可能更高,而第二階段通常被認爲具有穩定的增長率。首先,我們需要估計未來十年的現金流。在可能的情況下,我們會使用分析師的估計值,但是當這些估計值不可用時,我們會從最新的估計值或報告的價值中推斷出之前的自由現金流(FCF)。我們假設自由現金流萎縮的公司將減緩其萎縮速度,而自由現金流不斷增長的公司在此期間的增長率將放緩。我們這樣做是爲了反映早期增長的放緩幅度往往比後來的幾年更大。
差價合約完全是關於未來一美元的價值低於今天一美元的想法,因此我們需要對這些未來現金流的總和進行折現才能得出現值估計:
10 年自由現金流 (FCF) 估計
2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | |
Levered FCF(美元,百萬) | 24.8 億美元 | 374 億美元 | 3.83 億美元 | 4.20億美元 | 43.7 億美元 | 466 億美元 | 48.7 億美元 | 5.07億美元 | 52.4 億美元 | 5.40億美元 |
增長率估算來源 | 分析師 x5 | 分析師 x8 | 分析師 x7 | 分析師 x4 | 分析師 x2 | 分析師 x1 | Est @ 4.68% | Est @ 3.96% | Est @ 3.46% | 東部時間 @ 3.11% |
折扣現值(美元,百萬)@ 6.0% | 2.3 萬美元 | 3.3 萬美元 | 3.2 萬美元 | 3.3 萬美元 | 3.3 萬美元 | 3.3 萬美元 | 3.2 萬美元 | 3.2 萬美元 | 3.1 萬美元 | 3.0 萬美元 |
(“Est” = Simply Wall St估計的FCF增長率)
10 年期現金流 (PVCF) 的現值 = 310 億美元
我們現在需要計算終值,該值涵蓋了這十年之後的所有未來現金流。出於多種原因,使用的增長率非常保守,不能超過一個國家的GDP增長率。在這種情況下,我們使用10年期國債收益率的5年平均值(2.3%)來估計未來的增長。與10年 “增長” 期一樣,我們使用6.0%的股本成本將未來的現金流折現爲今天的價值。
終端價值 (TV) = FCF2033 × (1 + g) ÷ (r — g) = 54億美元× (1 + 2.3%) ÷ (6.0% — 2.3%) = 1480億美元
終端價值的現值 (PVTV) = 電視/ (1 + r)10= 1480億美元÷ (1 + 6.0%)10= 82億美元
因此,總價值或權益價值是未來現金流現值的總和,在本例中爲1140億美元。最後一步是將股票價值除以已發行股票的數量。與目前的173美元股價相比,該公司的估值似乎略有低估,比目前的股價折扣了30%。但請記住,這只是一個近似的估值,就像任何複雜的公式一樣,垃圾進出。
假設
上面的計算在很大程度上取決於兩個假設。第一個是貼現率,另一個是現金流。投資的一部分是自己對公司未來業績的評估,因此請自己嘗試計算並檢查自己的假設。DCF也沒有考慮一個行業可能的週期性,也沒有考慮公司未來的資本需求,因此它沒有全面反映公司的潛在表現。鑑於我們將塔吉特視爲潛在股東,因此使用權益成本作爲貼現率,而不是構成債務的資本成本(或加權平均資本成本,WACC)。在此計算中,我們使用了6.0%,這是基於0.812的槓桿測試版。Beta是衡量股票與整個市場相比波動性的指標。我們的測試版來自全球可比公司的行業平均貝塔值,設定在0.8到2.0之間,這是一個穩定的業務的合理範圍。
目標的 SWOT 分析
- 過去一年的收益增長超過了該行業。
- 收益和現金流足以彌補債務。
- 股息由收益和現金流支付。
- TGT 的股息信息。
- 與消費零售市場前25%的股息支付者相比,股息很低。
- 預計未來三年的年收入將增長。
- 根據市盈率和估計的公允價值,物有所值。
- 預計年收益的增長速度將低於美國市場。
- 分析師對TGT還有什麼預測?
展望未來:
儘管公司的估值很重要,但理想情況下,它不會是你仔細檢查公司的唯一分析內容。DCF模型不是完美的股票估值工具。最好你運用不同的案例和假設,看看它們將如何影響公司的估值。例如,如果稍微調整終值增長率,則可能會極大地改變整體結果。我們能否弄清楚爲什麼公司的交易價格低於內在價值?對於 Target,我們彙總了您應該評估的三個基本因素:
- 風險:例如,我們已經確定了 Target 的 2 個警告信號,你應該注意這些信號。
- 未來收益:與同行和整個市場相比,TGT的增長率如何?通過與我們的免費分析師增長預期圖表互動,深入了解未來幾年的分析師共識數字。
- 其他穩健的業務:低債務、高股本回報率和良好的過去表現是強大業務的基礎。爲什麼不瀏覽我們具有堅實業務基礎的股票互動清單,看看是否還有其他你可能沒有考慮過的公司!
PS。Simply Wall St應用程序每天對紐約證券交易所的每隻股票進行折扣現金流估值。如果您想找到其他股票的計算方法,請在此處搜索。
對這篇文章有反饋嗎?對內容感到擔憂?直接聯繫我們。 或者,給編輯團隊 (at) simplywallst.com 發送電子郵件。
Simply Wall St的這篇文章本質上是籠統的。我們僅使用公正的方法根據歷史數據和分析師的預測提供評論,我們的文章無意作爲財務建議。它不構成買入或賣出任何股票的建議,也沒有考慮到您的目標或財務狀況。我們的目標是爲您提供由基本數據驅動的長期重點分析。請注意,我們的分析可能不考慮最新的價格敏感型公司公告或定性材料。簡而言之,華爾街沒有持有任何上述股票的頭寸。
譯文內容由第三人軟體翻譯。
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