TIME VALUE OF MONEY
TRIDENT UNIVERSITY INTERNATIONAL AVIE MARIE JOHNSTONE
STRATEGIC CORPORATE FINANCE
FIN501 MODULE 2 SESSION LONG PROJECT
PROFESSOR WALTER WITHAM
JANUARY 21, 2013
After analyzing Target Corp’s financials, industry and future outlook, we recommend the purchase of 300 shares of the company’s stock at market order. As a leading discount retailer, only behind Wal-Mart, Target has made considerable growth in the industry over the past few years. Target offers an array of merchandise from women’s apparel, household products, toys and even food. One of the strengths of Target lies in its development of private brands, which helps create a strong image of the store in the customers’ minds. The company is able to further lower its costs through direct sourcing, buying merchandise at lower prices and strengthening its bargaining position with suppliers. While Target Corp hasn’t seen as much success with its other operations of Marshall Fields and Mervyn’s as it has with its namesake store, the company plans to invest resources into these two areas to turn around results. Target remains optimistic it will further penetrate the domestic retail market. (Kaleb Adams, Liza Debus). (12/03/2001).
Target Corp’s current stock price of $39.15 is lower than the target price of $44.58 according to our valuation models. Accordingly, Target’s stock is currently undervalued. Ratio analysis also demonstrates steady results from Target’s core businesses. In addition, the technical analysis indicates positive results. For these reasons, we are confident that Target will serve as a strong addition to the Student Managed Fund Portfolio. (Kaleb Adams, Liza Debus). (12/03/2001).
Despite being the general merchandising firm with rich growth opportunities, the highest profit margins and operating margins, Target faces several risks. These include its relative size and the highly competitive nature of general merchandising firms. With sales equaling only 18% of Wal Marts, Target faces a huge competitor. Additionally, with Wal Mart’s significantly greater buying power, Wal Mart can squeeze suppliers to offer goods at lower cost, allowing it to price squeeze Target without losing profitability. While both merchandisers follow a ‘superstore’ model, Target has chosen to spread into the fashion-focused market with Marshall Field’s and Mervyn’s, while Wal Mart has spread into the bulk-discount market with Sam’s Club. As economic conditions wane, Wal Mart’s spread is likely to generate more profits, while Target’s did not. Finally, it is still not clear that the Mervyn’s and Marshall Field’s brands would reap expected financial returns with their targeted customer segment. (Kaleb Adams, Liza Debus). (12/03/2001).
Target Corporation NYSE:TGT RF RM Beta
3.5% 12.0% 0.88
E (RT) = RF + (RM – RF) * Beta
E (RT) = 3.5% + (12.0% - 3.5%) * 0.88
E (RT) = 10.94%
Target Corporation and S & P 500
Assuming that this is Target Corporations 30 trading day’s horizon, S&P 500 is expected to underperform the Target. In addition to that, S&P 500 is as risky as Target. It trades about -0.32 of its total potential returns per unit of risk. Target Corporation is currently generating about 0.04 per unit of volatility. If you would invest 6,221 in Target Corporation on October 19, 2012 and sell it today you would earn a total of...