Corporate Finance Case Study: The Target Corporation

Lei Shi
Company Research Paper (The Target Corporation)
FINA 3301
November 21, 2013

Target Corporation (NYSE: TGT) is one of the top ten largest retailers in the U.S. by sales. In its most recent year in 2012, Target who has proclaimed itself as “cheap chic” produced over $70 billion in revenue through the sales of apparel, house wares, electronics and other products (Exhibit 5). At Target, corporate governance practices have been in place for more than 50 years, and continue to evolve to balance the interests of the Board, shareholders and management to maximize efforts. A majority of the 12-member Board is independent and selected based on success in their field and in relevance to their background in business and how well their skill
I then aligned this with the industry averages for each year. The results were somewhat unpromising. Typically a P/E ratio, or price to earnings ratio, represents what the investor should look for in terms of growth in a company, or expected growth. A good average P/E is around 20. Target’s P/E in 2007 was a strong 18.35. This was not a figure that is still somewhat promising. In 2008 this dropped to 14.43 while the industry average remained at 21.73. This gap in ratio is not something to shrug off. This means that in the year ending in 2008 investors were paying a fairer number for each dollar of earnings. Following this yet again was 2009s performance, which was extremely low, with a P/E of 10.19 and an industry average of 15.97. Dropping to a number this low is promising for investors as this means that they are paying just $10.19 for every dollar of earnings on the stock. This is about half of the normal industry average therefore making Target stick extremely attractive to the investors. Holistically this decline in P/E shows two things. One being the optimism of the investor in terms of willingness to pay and two, how much the investor will have to pay for each dollar of earnings. Targets decline in P/E displays both of these things and this is reflective of the times surrounding the decline. In 2008 we hit bottom in what was one of the worst mini recessions in a very long time. In
as a “middle-area” company that still needs growth in order to be able to increase its shareholder wealth (Exhibit 8). When looking at Target’s yearly records we can see that its revenue and EPS have increased from 2008-2012, which does show significant growth. Although when we look at the quarterly data we can see that the revenue has been flat across the three quarters and the EPS has went down on the last one. This means that this most recent year the company has been plateauing which means that they are not performing as well as the other top competitors in their industry (Exhibit 7). Like any retailer, Target’s long-term sales and income growth depend largely on the company’s ability to open new stores and expand into new emerging markets. Target holds large plans to expand into the international market to compete with its main competitor, Wal-Mart. Through global expansion, management choices and consistent supply chain management Wal-Mart has been able to keep a hold on the top spot. In the recent years Target has been trying to enter the international market, which will increase sales in the future. This will promote the growth of the shareholders wealth and increase their general worth in the investor’s eyes. As previously announced, Target plans to open 124 stores across Canada throughout 2013. Target Corporation is pushing its efforts to go international to reduce its dependence on the slow growing U.S. economy, and