What is the value of target using the constant dividend

Assignment Help Finance Basics
Reference no: EM133633104

Case: You have been hired as an equity analyst and asked to estimate the stock price of Target Corporation (TGT). See the questions on page 2. After examining its financials and growth expectations, you decide to use the dividend discount models (DDM) and price-multiples approaches to estimate the intrinsic value of Target.

Target's stock price, earnings per share (EPS), and dividends per share (DPS) for the past 5 years are given below.

Fiscal Year Stock Price $ EPS $ DPS $
2018  66.43 5.51 2.52
2019  124.76 6.36 2.60
2020  176.53 8.64 2.68
2021  231.44 14.10 3.16
2022 149.04 5.98 3.96

Analysts have estimated Target's perpetual constant dividend growth rate at 8%. Dividends are projected to increase at an annual rate of 10% in the next five years (2023-27). Beyond 2027, the annual dividend growth is expected to slow down to a constant growth rate of 8%.

Target's beta is estimated at 1.0. The current U.S. 10-year Treasury bond yield is 5%. Historically, the market risk premium in the U.S. stock market has been estimated as 6%. The required return of a stock or the discount rate is estimated using the Capital Asset Pricing Model (CAPM) equation.

You have compiled the projected earnings per share for 2023 for Target and Walmart in the retail store industry.

Retail Stores (Stock Symbol)

Current Stock Price $

(Oct 2023)

Projected EPS $ for 2023
Target (TGT) 105 7.58
Walmart (WMT) 155 6.46

Assume the last year (2022) as year zero. Your assignment is to value Target as of October 2023. Answer the following questions.

Question 1: What is the value of Target using the constant dividend growth model?

Question 2: What is the value of Target using the two-stage dividend growth model?

Question 3: What is the value of Target using the past 5-year average price-earnings multiple of Target?

Question 4: What is the value of Target using the forward Price-earnings multiple of Walmart?

Question 5: Would you recommend buying Target stock? How would the current and expected U.S. and global economic environment impact your decision? Explain clearly and completely.

Reference no: EM133633104

Questions Cloud

Cloudview to invest and train internally : Difficulties in recruiting trained care staff externally have led Cloudview to invest and train internally.
Concept of black feminism : Discuss what others think of the concept of Black feminism and how those interviews have further shaped your ideas, contrast them.
Explain the consequences for payment : they both work and are members of different super funds. explain the consequences for payment of their super to their siblings if one of them where to die
Describe the assessment process for the patient : Describe the assessment process for this patient. Identify at least one effective and one non-effective nursing intervention. Why did they work?
What is the value of target using the constant dividend : How would the current and expected U.S. and global economic environment impact your decision? Explain clearly and completely.
Routine physical examination of client chest palpation : During a routine physical examination of a client chest palpation is determined to be normal except for a 2 inch (
Describe the assessment process for the patient : Describe the assessment process for this patient. Identify at least one effective and one non-effective nursing intervention. Why did they work?
Local politicians to encourage changing the policy : Pending legislation will not achieve the best results for their community and are actively engaging with the local politicians to encourage changing the policy.
What is project a and bs net present value : What is Project A and B's net present value, assuming the cost of capital is 6%?

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd