1 / 16

Comprehensive Guide to Market Multiple Valuation of Target Corporation

This guide, authored by Jennifer Kellner, outlines the step-by-step process for conducting market multiple valuations, particularly for Target Corporation. It emphasizes the selection of relevant summary measures, identification of comparable companies, and calculation of valuation ratios. The guide informs users about the significance of enterprise value and equity value, discusses various performance measures like EPAT and NEA, and highlights the importance of understanding industry-specific multiples. Overall, it serves as a practical resource for those evaluating potential investments and valuations in the retail sector.

niran
Download Presentation

Comprehensive Guide to Market Multiple Valuation of Target Corporation

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Market Multiple ValuationTarget Corp. by Jennifer Kellner

  2. Steps: • Select relevant summary measures • Identify comparable companies • Compute the ratio for each comparable • Multiply the summary performance measure by the “market multiple” (from step 3) = Estimated Value of the “TARGET” Company (no pun intended) FINALLY: Adjust, Enterprise measure subtract and divide, Equity measuredivide

  3. Note: • Method, not a model • Particular performance measures are more suited to some industries over others • Presumes the target company is not fairly valued • Helpful in: Fraud, IPOs • No correct answer to how we “produce the multiple” • Equity value = closing price per share * common shares outstanding • Enterprise value = Equity value + value owed to debt holders • Target – no stock split since 2000 • Because we are calculating ratios, currency differences = o.k.

  4. Step 1: Select relevant summary masures • EPAT • NEA • Sales per sqft • Often used in the retail industry • Most revenue from in-store purchases • Wanted one B/S multiple and one I/S multiple • + an industry specific multiple • Focus on enterprise values so that capital structure need not be considered carefully • Debt v. equity holders

  5. Step 2: Identify Comparable companies Target Dollar General Wal-Mart Costco *Costco is removed for sensitivity analysis

  6. Step 3: computing multiples

  7. 1) EPAT Multiple

  8. Sensitivity Analysis for EPAT (less Costco): *Costco’s EPAT market multiple was 23.66

  9. 2) NEA Multiple

  10. Sensitivity Analysis for NEA (less Costco):

  11. Sales per sqft multiple Sensitivity analysis (less Wal-Mart) * Exemplifies Issue with market multiple method

  12. Buy, Sell or Hold? • Price per share as of 1/24/14: $57.72 • Valuation using EPAT multiple: $74.69 (buy) • Less Costco: $59.98 (hold) • Valuation using NEA multiple: $122.84 (buy) • Less Costco: $94.19 (buy) • Valuation using Sales per sqft multiple: $92.98 (buy) • Less Wal-Mart: $2.68 • Both suggest Target is undervalued (Buy) • (consider we are basing this on previous performance) • Depends on the performance measure used

  13. Where I felt… Uncomfortable • In using sales per sqft, how does this take into account online sales (which are becoming more and more relevant)? • Sales per sqft calculations • Inherent limitations (measure not all-encompassing) • Security breach • Comfortable • NEA & EPAT • Comparables • Calculations

  14. Evaluating Results: An Analysis • Subjective measure; many assumptions/judgment calls • There is no one “right” measure • No one measure entirely captures Target’s performance • Results could have been very different • Used different performance measures • Market multiple calculation method (average, median) • Different companies

  15. Market Multiples: Why we still use them • Done in practice • Simplicity • Place to start (gives a sense of where firm stands) • Difficult to get data for making forecasts

  16. Questions?

More Related