For the fiscal year ending January 31, 2012, Targets EBIT was $5,322,* and its tax rate was 34.3 percent. Its short-term borrowings were $3,786, and its long-term debt was $13,697. In addition, the firms book value of equity was $15,821.

For the fiscal year ending January 31, 2012 (2011), Target had total revenues of (in millions) $69,865 ($67,390) and net earnings of $2,929 ($2,920). Its total assets were $46,630 ($43,705) and its equity was $15,821 ($15,487).

According to its annual report, as of January 31, 2012, Targets borrowing costs averaged 4.6 percent, and its tax rate was 34.27 percent. A research report estimated Targets cost of capital at 10.5 percent. The firm had interest-bearing debt of $17,483. Moreover, Targets stock was trading at $50.81 per share, and there were 679.1 million shares outstanding. Now, lets assume Targets amount of debt is also a market value estimate of the debt. Lets also assume the current debt and equity values are at Targets optimal capital structure.

Earlier, you were provided with the information necessary to estimate Targets operating profit (EBIT) after-tax, also known as NOPAT; invested capital (the book value of equity plus interest-bearing debt); cost of capital; and market value of equity. Based on this information.

Target Corporation: EV/EBITDA Analysis

Lets suppose you forecast Targets EBIT for the year ending January 31, 2013, to be $5,352, and you forecast Targets depreciation and amortization to be $2,361. A research analyst determines that an appropriate forward-looking EV/EBITDA multiple for Target is 6.9 times. Based on this information,

1.Estimate Targets enterprise value, or EV.

2.Next, incorporating the value of Targets debt, estimate the firms value of equity.

3.Finally, based on 679.1 million shares outstanding, estimate the intrinsic value per share and compare it with Targets stock price on January 31, 2012, of $50.81.

4.Based on this analysis, is Targets stock overvalued or undervalued?