Making Sense of Stock Price

As of March $22,2024,$ Target Corporation $($stock ticker: TGT$)\text{'}$s stock price is $$169\mathrm{.}12$ per share.

NYSE $-$ Nasdaq Real Time Price $*$ USD

Target Corporation $($TGT$)$

$169\mathrm{.}12-1\mathrm{.}05(-0\mathrm{.}62\%)$

As of $12$:$46$ PM EDT. Market Open.

$1$D $5D,3M,6M,YTD,1Y,5Y,$ All

Mountain $,$ Advanced Chart

To assess whether the stock is over$/$undervalued$,$ we aim to estimate the share price using Discounted Free Cash Flow approach.

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Following is Target's sales forecast for the next four years along with the current year of $2024.$

$\backslash$table$[[$Year$,2024,2025,2026,2027,2028],[,($current year$),($year $1),\backslash$table$[[($year $2)]],($year $3),$ year $4)],[$Sales$,107,700,111,170,115,870,120,300,124,710],[$ million$),,,,,]]$

In addition, based on the company's past profitability and investment needs, we assume the followings:

EBIT is $6\mathrm{.}98\%$ of sales.

Tax rate is $21\%$ of EBIT.

Accounts Receivable is expected to be $6\mathrm{.}76\%$ of sales.

Accounts Payable is expected to be $11\mathrm{.}28\%$ of sales.

Inventory is expected to be $11\mathrm{.}48\%$ of sales.

Capital expenditure is expected to be $4\mathrm{.}60\%$ of sales.

Depreciation is expected to be $2\mathrm{.}90\%$ of sales.

$($a$)$ To estimate free cash flows $($FCF$)$ for years $1$ through $4,$ fill in the following table.

$($a$)$ To estimate free cash flows $($FCF$)$ for years $1$ through $4,$ fill in the following table.

$\backslash$table$[[,$Year $0,$Year $1,$Year $2,$Year $3,$Year $4],[$Sales$],[$Depreciation$],[$EBIT$],[$Taxes$],[$Accounts Receivable$],[$ Accounts Receivable$],[$Accounts Payable$],[$ Accounts Payable$],[$Inventory$],[$ Inventory$],[$CapEx$],[$FCF$,,,,,]]$

$2$

$($b$)$ After year $4($year $2027),$ both sales revenue and free cash flows are expected to grow at a long$-$run rate of $3\mathrm{.}0\%$ every year forever. The firm$-$specific discount rate is $8\%.$ What is the enterprise value today?

$($c$)$ In current balance sheet, the firm has $$3,805$ million in cash, $$26,834$ million in debt, and $461$ million shares outstanding. What is the share price?

$($d$)$ Based on your estimate in $($c$),$ do you conclude that the current market price of $$169\mathrm{.}12$ is fair? Or$,$ is the stock over$/$undervalued$?$

$($e$)$ Suppose that the long$-$run growth rate in part $($b$)$ is $4\mathrm{.}5\%$ rather than $3\mathrm{.}0\%$ per year. With this growth rate, how much would a share be worth? $($Other than the growth rate, there is no change in the discount rate and balance$-$sheet items$).$