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# Target Corp. (TGT)

## Dividend Discount Model (DDM)

Intermediate level

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.

### Intrinsic Stock Value (Valuation Summary)

Target Corp., dividends per share (DPS) forecast

US\$

Year Value DPSt or Terminal value (TVt) Calculation Present value at
0 DPS01
1 DPS1 = × (1 + )
2 DPS2 = × (1 + )
3 DPS3 = × (1 + )
4 DPS4 = × (1 + )
5 DPS5 = × (1 + )
5 Terminal value (TV5) = × (1 + ) ÷ ()
Intrinsic value of Target Corp.’s common stock (per share) \$
Current share price \$

Based on: 10-K (filing date: 2019-03-13).

1 DPS0 = Sum of the last year dividends per share of Target Corp.’s common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

### Required Rate of Return (r)

 Assumptions Rate of return on LT Treasury Composite1 RF Expected rate of return on market portfolio2 E(RM) Systematic risk of Target Corp.’s common stock βTGT Required rate of return on Target Corp.’s common stock3 rTGT

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

3 rTGT = RF + βTGT [E(RM) – RF]
= + []
=

### Dividend Growth Rate (g)

#### Dividend growth rate (g) implied by PRAT model

Target Corp., PRAT model

Average Feb 2, 2019 Feb 3, 2018 Jan 28, 2017 Jan 30, 2016 Jan 31, 2015 Feb 1, 2014
Selected Financial Data (US\$ in millions)
Dividends declared
Net earnings (loss)
Sales
Total assets
Shareholders’ investment
Financial Ratios
Retention rate1
Profit margin2
Asset turnover3
Financial leverage4
Averages
Retention rate
Profit margin
Asset turnover
Financial leverage

Dividend growth rate (g)5

Based on: 10-K (filing date: 2019-03-13), 10-K (filing date: 2018-03-14), 10-K (filing date: 2017-03-08), 10-K (filing date: 2016-03-11), 10-K (filing date: 2015-03-13), 10-K (filing date: 2014-03-14).

2019 Calculations

1 Retention rate = (Net earnings (loss) – Dividends declared) ÷ Net earnings (loss)
= () ÷ =

2 Profit margin = 100 × Net earnings (loss) ÷ Sales
= 100 × ÷ =

3 Asset turnover = Sales ÷ Total assets
= ÷ =

4 Financial leverage = Total assets ÷ Shareholders’ investment
= ÷ =

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= × × × =

#### Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × (\$ × – \$) ÷ (\$ + \$) =

where:
P0 = current price of share of Target Corp.’s common stock
D0 = the last year dividends per share of Target Corp.’s common stock
r = required rate of return on Target Corp.’s common stock

#### Dividend growth rate (g) forecast

Target Corp., H-model

Year Value gt
1 g1
2 g2
3 g3
4 g4
5 and thereafter g5

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= + () × (2 – 1) ÷ (5 – 1) =

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= + () × (3 – 1) ÷ (5 – 1) =

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= + () × (4 – 1) ÷ (5 – 1) =