Company name Target Corporation
Stock ticker TGT
Live stock price [stckqut]TGT[/stckqut]
P/E compared to competitors Good

MANAGEMENT EXECUTION

Employee productivity Poor
Sales growth Poor
EPS growth Fair
P/E growth Poor
EBIT growth Poor

ANALYSIS

Confident Investor Rating Poor
Target stock price (TWCA growth scenario) $46.19
Target stock price (averages with growth) $58.42
Target stock price (averages with no growth) $56.96
Target stock price (manual assumptions) $326.09

The following company description is from Google Finance: http://www.google.com/finance?q=tgt

Target Corporation sells a range of assortment of general merchandise and food in its stores. The Company’s general merchandise and CityTarget stores offer a food assortment on a smaller scale and its SuperTarget stores offer a line of food items comparable to traditional supermarkets. The Company operates in three segments: U.S. Retail, U.S. Credit Card and Canadian. The Company’s U.S. Retail Segment includes all of its United States merchandising operations. The Company’s U.S. Credit Card Segment offers credit to qualified guests through its credit cards: the Target Credit Card and the Target Visa. Its Canadian Segment includes costs incurred in the United States and Canada related to its Canadian retail market entry. As of February 2, 2013, the Company had 1,778 stores in 49 states and the District of Columbia. It also owns three distribution centers in Canada, with a total of 3,963 thousand square feet.

 

Confident Investor comments: At this price and at this time, I do not think that a Confident Investor can confidently invest in Target Corporation.

If you would like to understand how to evaluate companies like I do on this site, please read my book, The Confident Investor.

For owners of my book, “The Confident Investor” I offer the following analysis (you must be logged in to this site as a book owner in order to see the following analysis). If you have registered and cannot see the balance of this article, make sure you are logged in and refresh your browser.
[s2If current_user_can(s2member_level1)]
In order to assist you in using the techniques of this book, the values that I used when calculating the Manual pricing above were:

Stock price at the time of the calculation: $63.2

Growth: 0.19

Current EPS (TTM): $3.73

P/E: 59

Future EPS Calc: $8.9

Future Stock Price Calc: $525.16

Target stock price: $326.08

I hope that this makes you a better investor. [/s2If]

Company name Target Corporation
Stock ticker TGT
Live stock price [stckqut]TGT[/stckqut]
P/E compared to competitors Good
MANAGEMENT EXECUTION
Employee productivity Poor
Sales growth Poor
EPS growth Fair
P/E growth Poor
EBIT growth Poor
ANALYSIS
Confident Investor Rating Poor
Target stock price (TWCA growth scenario) $37.32
Target stock price (averages with growth) $47.07
Target stock price (averages with no growth) $47.65
Target stock price (manual assumptions) $49

Confident Investor comments: At this price and at this time, I do not think that a Confident Investor can confidently invest in this stock.


Earlier, I spoke about the earning estimates of the “experts” and that, at least in the case of Target [stckqut]TGT[/stckqut], the numbers didn’t make sense for a 5-year projection of their earnings growth.

Let’s dig in a bit deeper. We will stay with MSN Money (I am not beating up MSN Money – it is simply reporting data supplied by others – you can find the same numbers at Morningstar or probably your favorite broker’s website). A few items below Earnings Estimates, you will see Financial Results and then Statements will appear and it will show a page that includes a tab for 10 Year Summary.

Let’s compare Sales over the last 10 years to Earning before Interest and Taxes (EBIT). We can quickly calculate that Earnings has varied from about 5.5% to 7.5% and averages about 6.3%. We can also see that for the last couple years, Target has been a bit below average on its Earnings compared to Sales (5.92% for last year).

Earlier, we saw that the analysts are saying the company is going to increase earning 12% per year for the next five years. That would mean that either Sales are going to increase at 12% (something that when you look at the Sales column hasn’t happened in the last 3 years) OR the earnings/sales would have to increase very dramatically – something that also has not happened in the past.

My prediction is that Target will not grow earnings at greater than 12% per year for the next 5 years. The evidence of the company to pull off that level of performance is simply not available.

A quick side note – why do I care about earnings growth? Simple, earnings growth should result in a higher stock price meaning my investment in the company will continue to appreciate. The growth of one company compared to another company is a major factor in my decision to invest my hard-earned capital in any given company. I want to maximize my rate of growth of my investment – don’t you?

P.S. Tomorrow, I will post my analysis on Target Corporation. Sorry to use them as my whipping boy for this commentary.

I have received a few questions (which are always welcome – see my contact page) regarding the “expert” opinions that are offered on a stock. These experts suggest some information on the particular stock but many people struggle to understand the accuracy of this advice.

First, please understand that there are really smart people out there that do analysis on companies. These really smart people are constantly thinking about how to increase wealth for their clients. Also, understand that not all of these really smart people are on TV – most of them are locked in an office making really big money for very large portfolios. The biggest paycheck for these analysts is not on TV so don’t assume the best and brightest are looking at you via a camera.

Even the guys in the back rooms can be questioned regarding the logic of their suggestions.

For this conversation, lets just look at Target (TGT) [stckqut]TGT[/stckqut] and the information that is compiled by MSN Money (one of the best free financial portal sites). Go there in another window of your browser and type ‘TGT’ into the stock ticker search box (if you click on this link, I will do this for you). About halfway down the left side of that site you will see Earnings Estimates and on the resulting page you will see 4 tabs, with the 4th tab being Earnings Growth Rates (or just click on this link and go right there). As of this writing, you will see that for the last 5 years Target grew at 7.7%, the industry grew at 11.3%, and the S&P 500 grew at 3%. You will also see that the analysts are suggesting that in the next 5 years, Target will increase it’s earnings 12.4%, which is 61% higher than what it did the previous 5 years and nearly 10% better than the industry did in the previous 5 years.

The experts are also predicting that retailers in general are going to increase their growth in the next 5 years over the growth they experienced the last 5. That may be a bit logical if you assume that the economy is going to get better vs. the challenges of the immediate past. But, can you assume that Target’s share of that growth will increase as compared to its competitors, since that is the result of them achieving 12.4% growth.

If they can pull that AMAZING turnaround off, that is great. But, can you be confident that Target is going to do that much better than it was doing historically? I know that I can’t; therefore, I rarely give too much credence to what the “experts” are saying about a company’s growth prospects.

Please understand that there are a lot of good people that try to come up with these numbers, but let’s think about how they are doing it. They are going to trade shows, visiting with the company in question, and the company’s competitors. Everyone at these meetings has a significant vested interest to paint a rosy picture about the future.  They may not be wrong, but I doubt you can be confident that they are correct. As I state by the title of this site, I am a confident investor – I only do things that I am reasonably confident will play out in my favor.