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Microsoft Excel LibreOffice Calc


Dividend Discount Model (DDM)

Difficulty: Intermediate

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

USD $

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

Based on: 10-K (filing date: 2018-03-14).

1 DPS0 = Sum of 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)

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

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).

Calculations

2 See Details »

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


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Target Corp., PRAT model

Microsoft Excel LibreOffice Calc
Average Feb 3, 2018 Jan 28, 2017 Jan 30, 2016 Jan 31, 2015 Feb 1, 2014 Feb 2, 2013
Selected Financial Data (USD $ in millions)
Dividends declared hidden hidden hidden hidden hidden hidden
Net earnings (loss) hidden hidden hidden hidden hidden hidden
Sales hidden hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden hidden
Shareholders’ investment hidden hidden hidden hidden hidden hidden
Ratios
Retention rate1 hidden hidden hidden hidden hidden hidden
Profit margin2 hidden hidden hidden hidden hidden hidden
Asset turnover3 hidden hidden hidden hidden hidden hidden
Financial leverage4 hidden hidden hidden hidden hidden hidden
Averages
Retention rate hidden
Profit margin hidden
Asset turnover hidden
Financial leverage hidden
Dividend growth rate (g)5 hidden

Based on: 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), 10-K (filing date: 2013-03-20).

2018 Calculations

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

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

3 Asset turnover = Sales ÷ Total assets
= hidden ÷ hidden = hidden

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

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


Dividend growth rate (g) implied by Gordon growth model

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

where:
P0 = current price of share of Target Corp.’s common stock
D0 = 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

Microsoft Excel LibreOffice Calc
Year Value gt
1 g1 hidden
2 g2 hidden
3 g3 hidden
4 g4 hidden
5 and thereafter g5 hidden

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)
= hidden + (hiddenhidden) × (2 – 1) ÷ (5 – 1) = hidden

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

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