target ssg presentation to the cincinnati model investment club by james hurt
TRANSCRIPT
Target
SSG Presentation to the
Cincinnati Model Investment Club
by James Hurt
Standard SSG Presentation• A discussion of the industry.
• A discussion of Target.– Who they are.– What they do.– Who their competitors are.
• A discussion of my SSG for Target.
• A discussion of SSG’s for competitors.
• A conclusion of sorts.
Retail Store Industry
• Comparable-store sales and profits at most leading department store chains have been hurt by weak consumer demand for high-end apparel and home furnishings.
• Major discount chains have seen their same-store sales rebound to levels near the peaks achieved in the late Nineties.
Retail Store Industry
• The current economic scenario is working to the advantage of discounters, and we look for solid top- and bottom-line momentum at the two leading players, Wal-Mart and Target.
• Wal-Mart and Target’s near-term earnings prospects have been enhanced by Kmart’s bankruptcy filing.
Target
• Formerly known as Dayton-Hudson.
• HQ in Minneapolis.
• Three operating segments:– 1107 Target Stores, mainly in the upper
Midwest. 82% or revenues.– 264 Mervyn’s stores.– 64 Marshall Field’s stores.
Target
• Stores in every state save Alaska, Hawaii, and Vermont.
• Highest density in Minnesota, upper Midwest, and Arizona.
• Plan 81 new super stores this year and 75 more next year.
• Last years revenues were $40 Billion.
Wal-Mart
• Mass merchandising stores
• Segments– Wal-Mart discount stores.
– Super Centers
– SAM’s Clubs
– Neighborhood Markets
• 3244 stores, in every state.
• Starting to build stores overseas.
• Last year’s revenues were $218 Billion.
Kohl’s
• Family oriented specialty department stores.– Fewer departments than full-line department
stores.– Moderately priced apparel, shoes, home
products.– Middle income shoppers
• 420 stores, mainly in the Midwest.
• Last year’s revenues were $7.5 Billion.
SSG For Target
• No preferred stock.
• 900 Million shares outstanding.
• Insiders own 1.3% (12 Million shares).
• Institutions own 83%.
• $10 Billion in debt, 57% of capitalization.
• Trailing Twelve Months Growth– Sales 15.1% EPS 35.7%
SSG For Target
• 10 year sales line is straight at 9.5% growth.
• EPS ten year growth 20.0%.
• Pre-Tax Profit margin even at 5.3%.– 5.1% for Wal-Mart and 9.2% for Kohl’s.
• Return on Equity roughly even at 18.5%.– 20.1% for Wal-Mart and 16.0% for Kohl’s.
Projections For Target
• Projected sales growth to continue at 9.5%.
• Projected EPS growth to match sales growth.
• Projected EPS to be $2.46 in 2006.
• Projected High PE of 28.0 and Low PE of 16.0.
Five Year Price Rangefor Target
• Projected High Price $68.90
• Projected Low Price $25.00
• Current Price is $33.66, in Buy range
• Upside-Downside ratio is 4.1 to 1
• 104.7% price appreciation.
• Total Five Year Return is 18.4% per year.
SSG For Wal-Mart• No preferred stock.
• 4,500 Million shares outstanding.
• Insiders own 38.9% (1.7 Billion shares).
• Institutions own 35.4%.– Insiders + Institutions own 74.3%.
• $22 Billion in debt, 34% of capitalization.
• Trailing Twelve Months Growth– Sales 14.4% EPS 19.4%
SSG For Wal-Mart
• 10 year sales line is straight at 15.9% growth.
• EPS ten year growth 15.5%.
• Pre-Tax Profit margin even at 5.1%.– 5.3% for Target and 9.2% for Kohl’s.
• Return on Equity roughly even at 20.1%.– 18.5% for Target and 16.0% for Kohl’s.
Projections For Wal-Mart
• Projected sales growth to continue at 14.0%.
• Projected EPS growth to match sales growth.
• Projected EPS to be $2.87 in 2006.
• Projected High PE of 30.0 and Low PE of 15.0.
Five Year Price Rangefor Wal-Mart
• Projected High Price $86.10
• Projected Low Price $22.40
• Current Price is $54.11, in Hold range
• Upside-Downside ratio is 1.0 to 1
• 59.1% price appreciation.
• Total Five Year Return is 11.8% per year.
SSG For Kohl’s• No preferred stock.
• 1,100 Million shares outstanding.
• Insiders own 13.3% (146 Million shares).
• Institutions own 83.3%.– Insiders + Institutions own 96.6%.
• $1.1 Billion in debt, 27% of capitalization.
• Trailing Twelve Months Growth– Sales 25.7% EPS 40.9%
SSG For Kohl’s
• 10 year sales line is straight at 24.2% growth.
• EPS ten year growth 31.0%.
• Pre-Tax Profit margin even at 9.2%.– 5.3% for Target and 5.1% for Wal-Mart.
• Return on Equity roughly even at 16.0%.– 18.5% for Target and 20.1% for Wal-Mart.
Projections For Kohl’s
• Projected sales growth to continue at 15.0%.
• Projected EPS growth to match sales growth.
• Projected EPS to be $2.92 in 2006.
• Projected High PE of 30.0 and Low PE of 20.0.
Five Year Price Rangefor Kohl’s
• Projected High Price $87.60
• Projected Low Price $29.00
• Current Price is $69.77, in Hold range
• Upside-Downside ratio is 0.4 to 1
• 25.6% price appreciation.
• Total Five Year Return is 5.3% per year.
Conclusions• All three companies are very good
companies, with Kohl’s having perhaps the best overall management.
• Current prices for Kohl’s (PE = 45.6) and Wal-Mart (PE = 34.9) are to high.
• Target has lowest growth potential, and the lowest PE (PE = 20.3). Target’s price is in the buy zone.
• Target may have a problem with debt.