Stock Analysis on Net

Target Corp. (NYSE:TGT)

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Dividend Discount Model (DDM)

Microsoft Excel

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.

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Intrinsic Stock Value (Valuation Summary)

Target Corp., dividends per share (DPS) forecast

US$

Microsoft Excel
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. common stock (per share)
Current share price

Based on: 10-K (reporting date: 2022-01-29).

1 DPS0 = Sum of the last year dividends per share of Target Corp. 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)

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

2 See details »

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


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Target Corp., PRAT model

Microsoft Excel
Average Jan 29, 2022 Jan 30, 2021 Feb 1, 2020 Feb 2, 2019 Feb 3, 2018 Jan 28, 2017
Selected Financial Data (US$ in millions)
Dividends declared
Net earnings
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 (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).

2022 Calculations

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

2 Profit margin = 100 × Net earnings ÷ 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. common stock
D0 = the last year dividends per share of Target Corp. common stock
r = required rate of return on Target Corp. common stock


Dividend growth rate (g) forecast

Target Corp., H-model

Microsoft Excel
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)
=