In previous articles, we have analyzed Facebook (FB, Financial) using Peter Lynch's Fast Growing Checklist. We also analyzed Coca-Cola (KO, Financial) using Lynch's other checklist to determine that the stock is a reliable stalwart. Please note that the checklist is a personal guide to help you conduct research on a company and then decide if the star-ranking received is high enough to add to your portfolio. The answers are all subjective and can vary from each investor.
This is not an indication on whether or not to buy the stock, it is just an example as to how the checklist feature works.
Last year, Target Corporation (TGT, Financial) was the media's main topic of discussion during the holiday season due to a data breach in which email addresses, names, telephone numbers and pyshical addresses were compromised. This incident cost shareholders $148 million. It also left the company without a CEO and low customer service scores.
As the company continues to recover from the breach, let's take a look at how Target is valued based on tangible assets by using Ben Graham's Net-Net checklist feature.
1. Is the stock price less than 2/3 of net current asset value?
Net Current Asset Value Per Share (NCAVPS) is -25.64 and current stock price is $75.13
When a company's total liabilities are more than current assets, it creates a negative NCAVPS, indicating the balance sheet is weak.
Assets: $13,838
Liabilities: $30,088
(please note these numbers are in millions)
2. Safety (risk of bankruptcy, dillution, etc.): Does the company have a lot of debt?
Cash to debt ratio is 0.06, meaning the company is unable to pay off its debt with cash on hand, but this does not mean the company is burdened by debt.
Although Target's cash to debt ratio is not 1, the company's financial strength scored a 7 out of 10, which shows it is unlikely to fall into a distressed situation.
Target's interest coverage ratio is currently 4.10, which is close to Graham's required ratio of at least 5. A ratio less than 2 indicates a company is burdened by debt.
The company's Current Ratio is 1.02, which shows short-term financial strength. Healthy ratios are between 1 and 3, varying from business to business. The higher the current ratio, the more capable a company is of paying off its obligations if due.
3. Cost structure: What if the company's revenue declines but the cost stays the same?
Revenue growth has been slowing down over the past 12 months and is currently $73,707. Retail sales declined 1% to $72.6 billion from $73.3 billion.
In the U.S., 16 stores were opened and 8 were closed. There are 1,801 stores currently open.
In Canada, there were 3 stores opened and none were closed. There are now 133 stores currently open.
Target spent $1.7 billion on advertising this year and has also adapted its mobile apps to assist with online shopping.
4. Low cash burn: The company has enough cash to last several years even if it loses money
Target's current cash and cash equivalents is $780 Mil, declining from July to October. Last June, the company issed $2 billion in bonds to help deal with the data breach crisis and also general corporate purposes, as well as to buy back existing debt with higher interest rates.
The company's curernt cash to debt ratio is 0.6, meaning Target is currently unable to pay off its debt with current cash on hand.
5. Are insiders selling?
Insider ownership is 0%.
The chart above shows the number of insider buys and sells since 2012.
6. Share buybacks
Buyback ratio is 4.20 and the company's buyback ratio is higher than 93% of the 377 companies in the Global Discount Stores industry.
7. How well do you understand the business?
Target operates discount stores with general merchandise including electronics, clothing, jewelry. The SuperTarget stores offer a full line of food items, comparable to supermarkets and grocery stores.
Target's overall score: 2.7/5
I encourage you to rate Target yourself to determine whether or not this stock should be added to your portfolio.
