With a daily gain of 2.17% and a 3-month gain of 23.81%, Target Corp (TGT, Financial) has shown notable market performance. But the question remains: is the stock fairly valued? Boasting an Earnings Per Share (EPS) of 8.93, investors are keen to understand if the current stock price reflects the company's true worth. This valuation analysis aims to offer insights into whether Target (TGT) stands as a fair investment opportunity.
Company Introduction
Target, the nation's sixth-largest retailer, has built its strategy on providing a satisfying in-store experience and a broad range of fashionable apparel, home goods, and essentials at competitive prices. Since the 1990s, when Target's revenue tripled to nearly $30 billion, the brand has maintained a stylish image that resonates with an upscale consumer base. Currently, with over 1,900 stores in the United States, Target generates over $100 billion in sales and fulfills more than 2 billion orders annually. Comparing the stock price of $172.29 to the GF Value of $167.66, we delve into the fair value estimation of Target (TGT, Financial).
Summarize GF Value
The GF Value is an exclusive measure of a stock's intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. It indicates the stock's fair trading value. When a stock's price significantly deviates from the GF Value Line, it suggests overvaluation or undervaluation, influencing future returns. Target (TGT, Financial) is currently seen as fairly valued with a market cap of $79.50 billion. This fair valuation implies that the long-term return of Target's stock may align closely with the company's business growth.
Financial Strength
Understanding a company's financial strength is crucial to avoid the high risk of permanent capital loss. Key indicators such as the cash-to-debt ratio and interest coverage can provide insight into this area. Target's cash-to-debt ratio stands at 0.19, which is lower than 68.73% of its peers in the Retail - Defensive industry. With an overall financial strength rating of 6 out of 10, Target's financial health is deemed fair.
Profitability and Growth
Investing in profitable companies like Target, which has been profitable for 9 out of the past 10 years, typically carries less risk. With an operating margin of 5.31%, Target outperforms 71.15% of the companies in the Retail - Defensive industry, indicating strong profitability. Growth is also a pivotal factor in valuation, and Target's average annual revenue growth of 7.8% surpasses 61.17% of its industry competitors. However, its 3-year average EBITDA growth rate of 1.4% lags behind, suggesting mixed growth prospects.
ROIC vs. WACC
Comparing Return on Invested Capital (ROIC) to Weighted Average Cost of Capital (WACC) is another way to assess profitability. Target's ROIC of 11.47 indicates that it generates cash flow well in relation to the capital invested, and with a WACC of 9.76, the company appears to be creating value for its shareholders.
Conclusion
In summary, Target Corp (TGT, Financial) is assessed as fairly valued. The company's financial condition is fair, and its profitability is strong. Despite its growth ranking lower than some peers in the Retail - Defensive industry, Target's solid financials may offer a stable investment. For a deeper understanding of Target's financial health, investors can explore its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, check out the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
