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Valuation using cash flows

This report analyzes the intrinsic value of Target Corporation within the discount and variety stores industry, specifically comparing it to competitors like Dollar General, Wal-Mart, and Costco. Utilizing the Discounted Cash Flow (DCF) model, we calculate Free Cash Flow (FCF) from 2014 to 2017, considering various assumptions and forecasts. The analysis highlights key factors affecting the valuation, including growth prospects, discount rates, and market uncertainties. The estimated enterprise value for Target is approximately $105,248 million, with discussions on potential inaccuracies in the model.

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Valuation using cash flows

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  1. Valuation using cash flows By jenniferkellner (Discount, Variety Stores Industry)

  2. Discount, Variety stores industry Target Dollar General Wal-Mart Costco *Costco is least comparable

  3. Objective: estimate the intrinsic value of target • To do so, we use the Discounted Cash Flow model: • STEPS • Review assumptions & multiyear forecasts from Module 4 • Determine FCF 2014 – 2017 using the above • Discounted cash flow model • = Enterprise Value ?

  4. Step: Review forecasts and assumptions • Security breach, lower 2014 forecasted sales • Use this as a basis to determine FCF • NOTE: FCF = EPAT – ΔNEA • *A central assumption for our model

  5. Step 2: determine FCF (Using: FCF = EPAT – ΔNEA) • Note that ΔNEA is positive above in each year & expected to keep increasing • Target expansion via Canada, SuperTarget remodeling, additional city stores • Note also that Target owns most stores (fewer operating leases)

  6. ...from the 10k

  7. Step 3: discounted cash flow model Discount Rate (Bloomberg Terminal): 6.80% • 2,766 = First yrof growing perpetuity grown at 4.6% • Divide this by the DR less sales growth rate • Discount back 4 years (assumed B.O.Y.) = 96,638 • Add Sum of PV cash flows to arrive at value of the firm

  8. Target: • 105,248 Enterprise Value of the firm

  9. Uncertainties • Why this value is likely inaccurate • Discount rate • Still an assumption, can change value dramatically • Sales growth rate • Also an assumption • Justifiable but lacks accuracy • Especially: current Target business env’t • 2013 sales are forecasted • 2013 10K not released yet

  10. Questions?

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