Linked here is a PDF copy of my detailed analysis of Target Corp. (TGT). Below are some highlights from the above linked analysis:
Company Description: Target Corp operates general merchandise and food discount stores in the United States, which include Target and SuperTarget stores. The Company offers both everyday essentials and fashionable differentiated merchandise.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
TGT is trading at a discount to 1.), 2.) and 3.) above. If I exclude the high and low valuations and average the remaining two, TGT is trading at a 13.7% discount. TGT earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
- Rolling 4-yr Div. > 15%
- Dividend Growth Rate
- Years of Div. Growth
- 1-Yr. > 5-Yr Growth
- Payout 15% of avg.
TGT earned one Star in this section for 3.) above. TGT has paid a cash dividend to shareholders every year since 1965 and has increased its dividend payments for 40 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
- NPV MMA Diff.
- Years to >MMA
TGT earned no Stars in this section, and had one Star deducted for a negative NPV MMA Diff. The negative NPV MMA Diff. means that on a NPV basis for every $1,000 invested in TGT you would earn $2,597 less than a MMA earning a 20-year average rate of 4.61%. If TGT grows its dividend at 12.8% per year, it will never equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 4.61%.
Other: TGT is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. TGT has produced fairly consistent earnings and cash flows over the last decade. However, some analysts are concerned about the potential loss of market share this year resulting from lackluster merchandising and aggressive pricing by competitors. Food and other consumables generate less traffic for TGT than Wal-Mart (WMT). TGT apparel and home assortments lack differentiation relative to moderate-price department stores..
Conclusion: TGT earned one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and lost one Star in the Dividend Income vs. MMA section for a net total of one Star. This quantitatively ranks TGT as a 1 Star-Very Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would have to drop to $26.99 before TGT’s NPV MMA Diff. increases to the $3,000 NPV MMA Diff. that I like to see. At that price TGT would yield 2.22%. With a Graham value of $35.77, it would be a value play well before I could justify it as a dividend buy.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I had no position in TGT (0.0% of my Income Portfolio) and was long in WMT (1.6% of my Income Portfolio).
What are your thoughts on TGT?