I’m focusing on the retailers this week since they are in the news because of the Thanksgiving and Christmas shopping seasons. I took a look at Wal-Mart yesterday. Today I will focus on Target (TGT).
Targets share price in November 2001 was about $36.76. Today it is at $52.54 (42.9% higher). But this doesn’t take into account the higher prices of goods caused by Federal Reserve money printing otherwise known as price inflation. Due to the loss of the dollar’s purchasing power that $36.76 in 2001 now takes $47.00 to buy the same amount of goods. The good news is that Target’s share price has outgrown the government’s stated inflation. Plus Target paid dividends along the way. I like Targets past total return more than Wal-Mart’s.
Target (TGT)
Share price: $52.54
Shares: 671.4 million
Market capitalization: $35.28 billion
Bonds: $17.5 billion outstanding with about $1.2 billion due in 2012.
DIVIDEND RECORD – Target missed on quarterly dividend in 2006; otherwise, their dividend record is that of a consistent payer and grower.
Dividend yield: 2.28% ($1.20 annual DIV / $52.54 share price)
Dividend payout ratio: 30% ($1.20 annual DIV / $3.95 avg. adj. EPS) or 27.5% ($1.20/$4.35 latest EPS)
EARNING POWER - $3.95 average adjusted EPS @ 671.4 million shares. Target has the same earning power per share as Wal-Mart. What a coincidence!
(earnings adjusted for changes in capitalization – Target has been buying back shares)
EPS Net inc. Shares Adj EPS
1/2007 $3.21 $2,787 M 869 M $4.15
1/2008 $3.33 $2,849 M 851 M $4.24
1/2009 $2.86 $2,214 M 774 M $3.30
1/2010 $3.30 $2,488 M 755 M $3.71
1/2011 $4.00 $2,920 M 729 M $4.35
Five year average adjusted EPS = $3.95
Consider contrarian buying below $31.60 (8 times avg. adj. EPS)
Consider value buying below $47.40 (12 times avg. adj. EPS)
Target is trading at 13.3 times avg. adj. EPS
Consider speculative selling above $79.00 (20 times avg. adj. EPS)
BALANCE SHEET – Target’s balance sheet is stagnant just like Wal-Mart’s. A flat shareholder’s equity is really a loss in equity when you factor in price inflation.
Book value per share: $21.44 TTM
Price to book value ratio: 2.45 (Okay, but not good)
Current ratio: 1.38 latest qtr (over 2.0 is good)
Quick ratio: 0.57 latest qtr (over 1.0 is good)
CONCLUSION - March 2009 was the last good time to buy Target (TGT). The company has a decent dividend grower record that appears safe. It earns $3.95 per share on average (same as Wal-Mart) and only trades at 13.3 times this average. But its balance sheet is stagnant. You will have another opportunity to buy Target below $31.60 when the worldwide recession returns and all stocks get hammered. The dividend yield will increase to 5% @ $24.00 share price. This assumes that TGT holds its dividend steady at $0.30. They have sufficient earnings to do this.
I will examine Amazon.com tomorrow.
DISCLOSURE – I don’t own Target (TGT) stock.
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Be seeing you!
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