Target Financial Analysis Essay

1289 Words Nov 11th, 2012 6 Pages
Juan A. Torres Rodriguez

Mini Case Assignment

Target Corp. started in 1902 as Dayton’s Dry Goods company. At 1911, Dayton’s Dry Goods is renames as Dayton Company, and commonly known as Dayton’s Department Store. In 1946 Dayton’s Department Stores started giving the community back 5% of their pretax profits, a practice that Target Corp still maintains. During the 1960’s Dayton’s create a new kind of store to appeal the masses called Target, opening the first Target store in the Twin Cities on May 1, 1962. The industry sector in which Target Corporation competes is in the retail sector reaching the $62.87 Billion in sales.
As mentioned above, Target competes in the retail sector, which makes the operating risks of
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We can calculate the Cost of Equity using the Risk Free Rate of 3.00% and a Risk Premium of 7.5% points. Using the new beta of .48 we can determine what is the Expected Total return by Common Stockholders: rRF = 3.00 rRP = 7.5 b= .48
Cost of Equity = rRF + (rRP x b)
=3.00% + (7.5% pts x 0.48)
= 0.066 ≈ 6.6%
Given the dividend yield of 2.0 we can also determine the Expected annual appreciation of Target’s Common Stock:
6.6% Total Return – 2.0 Dividend Yield = 4.6 % of E. A. A. With the previous information calculated we could proceed and calculate the Weighted Average Cost of Capital: wd = 31% ws = 69% rs = 6.6% rd = 3.875% Tax = 34.3 WACC = wd ( 1 – T)rd + ws(rs) =31% ( 1 – 34.3%) 3.875% + (69% x 6.6%) = 0.053432 = 5.3432% One of the last things used to evaluate in order to consider investing in a company is its Price Earnings Multiple. Target’s Price Earnings Multiple is calculated the following way: Stock Price= $62.50 Earnings Per Share = $4.50 P/E = Stock Price / EPS = 62.50 / 4.50 = 13.89 If we compare Target’s P/E ratio with Wal-Mart, which is in the same industry, (14.03 P/E), Target’s P/E is within ndustry. This chart was retrieved from Yahoo! Financial. In here we can see the performance of Target’s Stock (TGT) during the past five years. In 2008

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