The Financial Analysis of Target

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Financial Analysis and Valuation for Target Inc.
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CONTENTS:
1. Financial Highlights of Target Business…………………………………. 2. Target Financial Analysis………………………………………………… 3. Valuation Models……………………………………………………… 4. Corporate Finance Strategy………………………………………………. 5. Investment Recommendations……………………………………………. 6. The Impact and Implication of Financial Crisis on Target’s Financial Performance …………………………………………………. 7. Conclusions

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1. Financial Highlights of Target Business
Target Corporation was incorporated in Minnesota in 1902. Target operates large-format general merchandise discount stores in the United States, which include Target and SuperTarget stores. Target Corporation offers both everyday essentials and fashionable, differentiated merchandise at exceptional prices. It has a strong supply chain and technology network and operates as a single business segment. Target’s credit card operation represents an integral component of the core retail business. Through the branded proprietary credit (or REDcard) products, Target strengthens the bond with the guests, drive sales and contribute to earnings. Target also operates Target.com, an online business. The online business is small relative to the overall size, but is growing at a much more rapid annual pace than the stores. Target is in the industry of Discount, Variety Stores. Its market capital is 39.7B. Its largest competitor, Walmart and Costco, have market capital of 196.7B and 26.9B, respectively. The rest companies in the same industry such as Dollar General Corporation, Dollar Tree, and Bit Lots Inc. take only 10% of the total market capital. Target Corporation has stably growing revenue. In 2009,2008,2007,2006, the revenue increased by 12.88%, 6.2%, 2.3%, and 0.87%, respectively. The Earning Per Share is $3.31,$2.87, $3.37, $3.23, $2.73,$2.09 respectively. The Dividend Per Share is $0.67, $0.62,$0.54,$0.46, $0,38,$0.31 respectively. |Financial Results: (millions)|2009 |2008 |2007 |2006 |2005 |2004 | |Total revenues | |Effective Tax Rate |0.35 | |Debt Ratio |40% | |Growth of Sales (post-2009) |5.57% | |long Term Growth (>=2010) |3.00% | |WACC(= E/(D+E)*Re + |8.70% | |D/(D+E)*Rd*(1-t)) | | |Rm |10.00% | |Rd |10.54% | |Re |9.94% | |Rf |4.00% | |Beta |0.99 |

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In the Economic Profit Model, the average ROIC is calculated as 15.19%. The model discounts the economic profit in each period with WACC. Using the same WACC with the FCF valuation model, the Economic Profit model returns the firm value of $19428.17563 million. The value per share is estimated as $26.93/share.

|Key Factors For Economic Profit Valuation Model | |Effective Tax Rate |35% | | ROIC |15.19% | |WACC |8.70% | |long Term Growth (>=2007) |3% |

In the Residual Earning Model, the ROE is 18%. This model discounts the future residual income with WACC and then adds the initial book value of firm. Using the same WACC as the Free Cash Flow model, the mode returns a firm value as $34610.8394 million. The value per share is estimated as $47.97/share. |Key Factors For Residual Earning Model | |Effective Tax Rate |35% | |ROE...
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