In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)
Weighted Average Cost of Capital (WACC)
FCFF Growth Rate (g)

Target Corp., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Year	Value	FCFF_t or Terminal value (TV_t)	Calculation	Present value at 12.21%
0¹	FCFF₀	4,208
1	FCFF₁	4,533	= 4,208 × (1 + 7.73%)	4,040
2	FCFF₂	4,864	= 4,533 × (1 + 7.29%)	3,863
3	FCFF₃	5,197	= 4,864 × (1 + 6.86%)	3,679
4	FCFF₄	5,530	= 5,197 × (1 + 6.42%)	3,489
5	FCFF₅	5,861	= 5,530 × (1 + 5.98%)	3,295
5	Terminal value (TV₅)	99,671	= 5,861 × (1 + 5.98%) ÷ (12.21% – 5.98%)	56,035
Intrinsic value of Target Corp. capital				74,400
Less: Debt (fair value)				15,480
Intrinsic value of Target Corp. common stock				58,920

Intrinsic value of Target Corp. common stock (per share)				$127.90
Current share price				$121.72

Based on: 10-K (reporting date: 2024-02-03).

¹ See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Target Corp., cost of capital

	Value¹	Weight	Required rate of return²	Calculation
Equity (fair value)	56,073	0.78	14.75%
Debt (fair value)	15,480	0.22	3.02%	= 3.85% × (1 – 21.68%)

Based on: 10-K (reporting date: 2024-02-03).

¹ US$ in millions

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 460,674,666 × $121.72
= $56,073,320,345.52

Debt (fair value). See details »

² Required rate of return on equity is estimated by using CAPM. See details »

Required rate of return on debt. See details »

Required rate of return on debt is after tax.

Estimated (average) effective income tax rate
= (21.90% + 18.70% + 22.00% + 21.20% + 22.00% + 21.30%) ÷ 6
= 21.68%

WACC = 12.21%

FCFF growth rate (g) implied by PRAT model

Target Corp., PRAT model

	Average	Feb 3, 2024	Jan 28, 2023	Jan 29, 2022	Jan 30, 2021	Feb 1, 2020	Feb 2, 2019
Selected Financial Data (US$ in millions)
Net interest expense		502)	478)	421)	977)	477)	461)
Discontinued operations, net of tax		—)	—)	—)	—)	12)	7)
Net earnings		4,138)	2,780)	6,946)	4,368)	3,281)	2,937)

Effective income tax rate (EITR)¹		21.90%	18.70%	22.00%	21.20%	22.00%	21.30%

Net interest expense, after tax²		392)	389)	328)	770)	372)	363)
Add: Dividends declared		2,050)	1,931)	1,655)	1,367)	1,345)	1,347)
Interest expense (after tax) and dividends		2,442)	2,320)	1,983)	2,137)	1,717)	1,710)

EBIT(1 – EITR)³		4,530)	3,169)	7,274)	5,138)	3,641)	3,293)

Current portion of long-term debt and other borrowings		1,116)	130)	171)	1,144)	161)	1,052)
Long-term debt and other borrowings, excluding current portion		14,922)	16,009)	13,549)	11,536)	11,338)	10,223)
Shareholders’ investment		13,432)	11,232)	12,827)	14,440)	11,833)	11,297)
Total capital		29,470)	27,371)	26,547)	27,120)	23,332)	22,572)
Financial Ratios
Retention rate (RR)⁴		0.46	0.27	0.73	0.58	0.53	0.48
Return on invested capital (ROIC)⁵		15.37%	11.58%	27.40%	18.94%	15.61%	14.59%
Averages
RR	0.51
ROIC	15.22%

FCFF growth rate (g)⁶	7.73%

Based on: 10-K (reporting date: 2024-02-03), 10-K (reporting date: 2023-01-28), 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02).

¹ See details »

2024 Calculations

² Net interest expense, after tax = Net interest expense × (1 – EITR)
= 502 × (1 – 21.90%)
= 392

³ EBIT(1 – EITR) = Net earnings – Discontinued operations, net of tax + Net interest expense, after tax
= 4,138 – 0 + 392
= 4,530

⁴ RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [4,530 – 2,442] ÷ 4,530
= 0.46

⁵ ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 4,530 ÷ 29,470
= 15.37%

⁶ g = RR × ROIC
= 0.51 × 15.22%
= 7.73%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value₀ × WACC – FCFF₀) ÷ (Total capital, fair value₀ + FCFF₀)
= 100 × (71,553 × 12.21% – 4,208) ÷ (71,553 + 4,208)
= 5.98%

where:

Total capital, fair value₀ = current fair value of Target Corp. debt and equity (US$ in millions)
FCFF₀ = the last year Target Corp. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Target Corp. capital

FCFF growth rate (g) forecast

Target Corp., H-model

Year	Value	g_t
1	g₁	7.73%
2	g₂	7.29%
3	g₃	6.86%
4	g₄	6.42%
5 and thereafter	g₅	5.98%

where:
g₁ is implied by PRAT model
g₅ is implied by single-stage model
g₂, g₃ and g₄ are calculated using linear interpoltion between g₁ and g₅

Calculations

g₂ = g₁ + (g₅ – g₁) × (2 – 1) ÷ (5 – 1)
= 7.73% + (5.98% – 7.73%) × (2 – 1) ÷ (5 – 1)
= 7.29%

g₃ = g₁ + (g₅ – g₁) × (3 – 1) ÷ (5 – 1)
= 7.73% + (5.98% – 7.73%) × (3 – 1) ÷ (5 – 1)
= 6.86%

g₄ = g₁ + (g₅ – g₁) × (4 – 1) ÷ (5 – 1)
= 7.73% + (5.98% – 7.73%) × (4 – 1) ÷ (5 – 1)
= 6.42%

Target Corp. (NYSE:TGT)

Present Value of Free Cash Flow to the Firm (FCFF)

Intrinsic Stock Value (Valuation Summary)

Weighted Average Cost of Capital (WACC)

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

FCFF growth rate (g) implied by single-stage model

FCFF growth rate (g) forecast